Mumbai: Two months away from the end of his term as chairman of the Securities and Exchange Board of India (Sebi), C.B. Bhave called for the autonomy of financial regulators to be protected and said there shouldn’t be any interference in the policymaking processes of the watchdog agencies.
Autonomy was not just about establishing structures and making legal provisions, but also a matter of perception, Bhave said in Mumbai on Friday while delivering the 41st A.D. Shroff annual public lecture, during which he spoke about the sometimes touchy relationship that Sebi had with the finance ministry.
“The relationship between RBI (Reserve Bank of India), which is a 75-year-old institution, and the government is far more evolved,” Bhave said. “Sebi, in its 19th year, stands somewhere in the middle of regulatory evolution. It is more evolved than some of the other regulators, which were formed in this century, but lesser than RBI.”
Bhave referred to a remark by founding Sebi chairman G.V. Ramakrishna to illustrate his point—brokers should know that the road from Dalal Street (where the Bombay Stock Exchange is located) to Mittal Court (where Sebi was previously based) doesn’t run through North Block (where the finance ministry is located).
Capital markets supervision was the responsibility of the finance ministry before Sebi was formed and there was a tendency among brokers to go to the finance ministry bypassing Sebi.
“This tension between the executive arm of the government and the regulator is not a phenomenon limited to the early stages of regulation. It still continues,” Bhave said. “It is not easy for the executive to deal when the very powers they had are moved to the regulator. Therefore, to protect the autonomy of the regulators, adequate supporting tools are necessary.”
In the current environment, it is essential to prevent the unregulated development of markets. “Attempts of an unregulated development have been made in the past and the country had to pay a heavy price for this,” Bhave said.
The regulators were formed as autonomous bodies with the aim of ensuring orderly and transparent growth, he said. The adjudication, governance and financial autonomy issues of regulators should be handled differently, he added.
“There is a proposal to transfer the funds of regulators (including the investor protection fund of Sebi) to the Consolidated Fund of India. If the government accepts this proposal, it may severely damage the autonomy of the regulators,” said Bhave.
Bhave pointed out that regulatory appointments come with riders such as “for three years” or “until further orders”. While no regulator had been terminated under such conditions, “we should debate whether it’s sufficient to rely on tradition”, he said.
The Sebi chief referred to institutions such as the Election Commission and the Comptroller and Auditor General of India, where, though appointments are made by the executive, removals are governed by constitutional provisions.
There have been several recent instances of the finance ministry and the regulator being at odds with each other.
Earlier this year, the finance ministry intervened in a turf battle between Sebi and the insurance regulator, over control of unit-linked insurance plans (Ulips), in favour of the latter. The government unexpectedly passed an ordinance that put the Insurance Regulatory and Development Authority unequivocally in charge of the contentious investment instrument.
Sebi had argued that Ulips, being predominantly equity investment products, be brought under the collective investment schemes of the capital market regulator.
There have also been delays in the finalization of the new takeover code, which proposes sweeping changes in the way mergers and acquisitions are done in India. It had been expected that the new set of regulations would be implemented around the end of the current fiscal year.
But according to people familiar with the development, who spoke on condition of anonymity, Sebi is unlikely to arrive at a decision on the takeover code unless the finance ministry takes a final call on some of the recommendations.
The suggestions made by the takeover regulatory advisory committee include raising the public offer trigger to 25% from the existing 15%. The panel has also suggested that the acquirer make an open offer for the entire 100% in case its holding crosses the 25% threshold.