SEBI Penalises OnePaper Research Analysts ₹30 Lakh For Failing To Monitor Employee Communications

The Securities and Exchange Board of India (SEBI) on Tuesday imposed a penalty of ₹30 lakh on Bengaluru-based OnePaper Research Analysts Private Limited.

The regulator found that the firm failed to maintain adequate controls over employee communications with clients and did not ensure compliance with regulatory requirements governing research analysts.

The order was passed by Adjudicating Officer Amit Kapoor following proceedings arising from an inspection covering the period between April 2022 and March 2024.

Recording his findings, Kapoor observed:

“By not maintaining call records and other forms of communication between Noticee's employees and clients, Noticee failed to deploy adequate mechanisms to monitor its employee communications to ensure that the employees are not engaging in mis-selling of services of the Noticee by assuring returns and thereby, failed to exercise due diligence in performing its duties and responsibilities.”

The proceedings stemmed from an inspection and a review of complaints received through the SCORES platform. Those complaints were accompanied by screenshots of WhatsApp conversations between employees of the research analyst entity and clients.

According to the order, the screenshots showed employees advising clients on trading positions and stop-loss levels. In some instances, employees assured clients that losses would be recovered or that profits would be generated. Kapoor also noted that some of the employees involved were neither research analysts nor holders of the requisite NISM certification.

OnePaper disputed the allegations. The company maintained that its internal policy required research recommendations to be disseminated only through SMS. It contended that the WhatsApp communications were unauthorised acts of individual employees carried out without the firm's knowledge or approval. The company also submitted that disciplinary action had been taken against employees found violating the policy.

The company further argued that the communications were exchanged only with existing subscribers and therefore could not be treated as advertisements. It denied engaging in fraud. It also contended that the WhatsApp communications relied upon by SEBI did not constitute authorised research recommendations issued by the firm.

Kapoor rejected those submissions. The order records that the firm did not maintain call recordings of employee interactions with clients. It also failed to preserve other communication records that could have enabled effective supervision.

Rejecting the firm's reliance on its internal compliance framework, Kapoor observed:

“The Noticee's reliance on its internal policy, HR policy, SMS policy, and its other policies, for denying all the allegations, cannot be accepted.”

The order notes that OnePaper employed around 100 sales executives while having only two research analysts. Given the scale of its sales operations, SEBI found that stronger supervisory mechanisms were required. Those controls were found to be inadequate and not effectively implemented.

On this aspect, Kapoor observed:

“It shows the Noticee's focus was on sales and service. If sales and service was such an important function of the Noticee, it ought to have maintained sufficient and appropriate internal controls over its sales executive staff, which it failed to do.”

Kapoor held that the existence of internal policies, by itself, was not sufficient. As a regulated entity, OnePaper remained responsible for ensuring that those policies were effectively implemented and followed by its employees.

Holding that the firm had violated the Research Analysts Regulations, the PFUTP Regulations, and the advertisement code applicable to research analysts, Kapoor imposed a penalty of ₹10 lakh and a further penalty of ₹20 lakh. The total penalty imposed on the firm was ₹30 lakh.