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Business News/ Opinion / With new powers, it is time for Sebi to deliver
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With new powers, it is time for Sebi to deliver

Sebi hardly has any excuse left for not delivering on effective governance

Illustration: Jayachandran/MintPremium
Illustration: Jayachandran/Mint

Having completed 25 years as the markets regulator, Securities and Exchange Board of India has already put in place fairly robust rules and processes. Its primary role now pertains to the enforcement of its rules and regulations, but its track record on this front has been poor. One of the reasons given for this was the lack of adequate powers, such as recovering penalties by attaching and selling properties and accessing information such as call data records.

In this backdrop, the government’s decision to arm the markets regulator with more investigative and enforcement powers last week is welcome. But it should be backed by clear guidelines for use of these powers as well as better staffing to ensure they are used effectively.

The fact that the government chose the ordinance route, as well as the nature of Sebi’s new powers, makes it look like it is a knee-jerk reaction to recent cases such as Sahara and Saradha. Be that as it may, it will help the regulator in a number of other cases. For instance, the regulator has been able to freeze shares held by those who participated in the IPO fraudulent applications scam, but it didn’t have the powers to sell these shares. The legal sanction to attach and sell properties will go a long way in ensuring that Sebi’s orders are enforced.

Easier access to information such as call data records from telecom companies as well as financial data from banks is essential in establishing offences such as insider trading. Of course, in such cases, Sebi will still be relying on circumstantial evidence, as it hasn’t been given the powers to tap phones and get access to email transcripts. Some of the US Securities and Exchange Commission’s successful prosecutions in insider trading cases involved the use of such tools, which was done in collaboration with other enforcement agencies. But even though Sebi will be relying on circumstantial evidence, its investigative team will be far more empowered to connect the dots with easier access to information and the powers to launch a search and seize exercise. In fact, it’s heartening to note that Sebi hasn’t been given powers to tap phones, etc., as it would have resulted in regulatory overreach.

Of course, there is always the possibility of misuse or abuse of power. But currently, Sebi is on the other side of the spectrum, where it finds it difficult to prosecute and penalize offenders. It may well be a while before allegations of regulatory abuse are made. Still, given the possibility, the regulator should have clear guidelines to be followed before drastic measures such as search and seizure operations are taken. It will be dangerous to fully leave these decisions to the discretion of the Sebi chairman who is in office.

Additionally, as an institution, Sebi isn’t naturally geared to performing the above-mentioned functions. Needless to say, it must improve its staffing and have more senior executives who are experienced in the sphere of investigation and enforcement. Sebi can no longer afford to have executives who are on deputation from other government organizations and who can be called back at any time.

Now that Sebi has got effectively all the powers it has been asking for, there is hardly any excuse left for not delivering on effective governance. If Sebi’s orders continue to get overturned at the Securities Appellate Tribunal, it’ll reflect on its incompetency. The excuse of a lack of investigative powers can no longer be made.

If Sebi diligently applies its new powers in a few important cases and is successful in prosecuting offenders, it will not serve justice in those particular cases, but also act as a deterrent in the future. Also, with direct powers, the time taken for each investigation will reduce, thereby increasing the capacity of the regulator to handle more cases.

Of course, in all this, the role of the government cannot be ignored. News reports suggest inordinate delays in certain cases as well as lenient orders because of pressure from higher authorities. Hopefully, the government’s willingness to grant Sebi new powers can also be read as a statement that it is comfortable with Sebi performing more and more autonomously.

Finally, the government has done well to give Sebi charge of regulating collective investment schemes. Since the days of the plantation schemes, practically every government agency washes its hands off such scams when they surface. Removing the ambiguity on who regulates such firms will help reduce malpractices to a large extent.

Will the new powers help Sebi curb all kinds of fraud? Tell us at views@livemint.com

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Published: 25 Jul 2013, 05:36 PM IST
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