Over the years, SEBI has tended to an ever-increasing cast of characters - across listed companies, market intermediaries, investors, key management, with each category maturing in both scale and complexity. It is not only the business conduct of these entities, but also the efficacy of their internal management and processes that are routinely scanned by the regulator for deviance.Today, all such penalties are imposed after completion of an inquisitorial process, in the form of publicly available, reasoned orders that pronounce upon the merits of the matter and impose monetary fines and/or substantive restrictions. An available alternative to this is the settlement process, which allows parties to steer clear of a “speaking” verdict and instead, consent to settle without admission (or denial) of guilt, subject to payment of a pre-agreed amount.The benefits and shortcomings of both these routes have been discussed at length across forums for years now and while they have worked superbly for the most part, as on date, these remain the only two tools being used across a staggering variety of violations with a vast range of distribution, some of which require more nuanced solutions than the two extremities of sharp penal action on the one hand and a noiseless interment on the other.Also Read: BACKSTORY: Ketan Parekh and his K-10 stocksHere are a few suggestions. The SEBI statute is broad enough to allow the regulator to conceive and put in place the idea of “business improvement orders”. Recognised in some jurisdictions like Japan, business improvement orders mandate errant parties to identify why a particular violation occurred and put in place identified improvements in their ways of doing business. Such instances can be accompanied by fines as well as directions to limit certain businesses until specific process upgrades are achieved, but the thrust of these orders is not punitive.Rather than embarking upon a post-mortem dissection of non-compliances, such orders are focussed on better understanding why such violations occurred, and then mandate the fixing of that gap. In fact, there have been situations in the past where SEBI has taken such a forward-looking approach and sought for business improvements in its orders, but there is still considerable merit in institutionalising that practice and recognizing it as an independent approach to solve for deviations.Financial regulatory theorists have long explored different deterrence models followed by authorities, with an overarching refrain of whether we must “punish or persuade” and when we must probe the automated applicability of penal enforcement action that is envisaged in our statutes. Deterrent orders when accompanied by motivators, signal the need for good corporate behaviour. Where a regulatory order is structured in a manner that throws sharp focus on the responsibility to mend and improve, it generates accountability and travels beyond turning into an exchange of allegations and reprimands. It positively impacts the tone and tenor of the order itself and also allows boards and committees to focus on fixing the problem, rather than only affixing the blame.Also Read: Sebi proposes to tighten timeline for filing settlement applicationsThe utility of this approach can be illustrated by a simple example. Situations where listed companies and their compliance officers are charged with lapses in filing for public disclosures or failure to maintain appropriate gating checks for employee misconduct, are today subject to the fight or flight treatment, with either a litigious or a settlement route being available. Settlements may not always be an option for compliance officers or individuals who are eager to demonstrate a spotless professional track record, as a result of which many such proceedings wind up in endless litigation.While it may be tempting for SEBI to ensure appropriate messaging by publicly censuring such companies through orders that dissect their past conduct in order to condemn and penalise, one has to wonder if same results can be achieved through alternate positioning and a positive nudge towards improving the quality of process and disclosures. This helps avoid using a sledgehammer to swat the proverbial fly, and yet gives the regulator enough leeway to identify a lapse, impose a monetary fine and demand demonstrable accountability.By their very nature, business improvement orders may be more suited to institutions and their officers, rather than standalone offences like for instance, market conduct violations by individuals and of course, there will always be egregious circumstances that warrant harsher, penal action. Regulatory discretion must, therefore, be thoughtfully exercised to separate the wheat from the chaff and parse for the worst, before deciding what kind of cases must come within the standard enforcement penal processes.At first glance, such measures may seem like just optical shifts, but encouraging positive change in corporate behaviour enhances intrinsic motivations to comply and is a powerful shift in the grammar of an enforcement structure that primarily wields the sanctions dagger. A robust system cannot be created on binary imperatives only. Hard coding nuances and allowing room for balanced outcomes in the enforcement design must be an abiding feature and not an exception.The author, Shruti Rajan is Partner and Financial Regulatory and Corporate Governance expert at law firm, Trilegal.