Self-regulation does not work well in preventing frauds, says Sebi WTM
Mumbai, Nov 2, 2023
Amarjeet Singh says 16 working groups looking to simplify regulations
Amarjeet Singh, the whole-time member (WTM) of Securities and Exchange Board of India (Sebi), on Thursday lamented that self-regulation has not yielded the desired results in curbing instances of financial misconduct in the financial market.
Singh’s comments came at a time when several segments in the industry were advocating for self-regulatory bodies and institutional-level governance.
“Financial misconduct and fraud in the absence of adequate regulation is a recurring pattern in the industry. The principles of self-regulation, or the belief that the market will take care of itself, doesn't work really well,” Singh said, while speaking at the ‘Gatekeepers of Governance’, a seminar on corporate governance organised by Excellence Enablers, a board evaluation and consultancy firm.
Singh, who has been working with Sebi for over three decades in various capacities before taking charge as WTM in September, cited several examples to elucidate his point of view.
“We have had our fair share of negative corporates. We saw fraud at a software firm over 15 years back, lapses at a big infra firm with over 3,000 subsidiaries, a big private sector bank whose promoter is yes and no, a gems and jewellery company whose promoter fled the country, and a conglomerate in the power sector, which sacked its chairman and CFO,” Singh explained.
He noted that one of the reasons for the failure of some of the large global banks this year was the rollback of certain provisions, which led to the leniency and lower capital requirements, adding that such instances illustrated the need for a more effective supervision.
Singh added that out of 167 circulars issued by Sebi between September 2022 and August 2023, 44 per cent were related to development, 48 per cent around investor protection, and 8 per cent on extension of timelines.
M Damodaran, chairperson, excellence enablers, and the former chairman Sebi, said people need to differentiate between compliance and regulations.
“Compliance is doing what someone else wants you to do and governance is doing the things you think you should do because that is the right thing to do,” he said.
Singh likened the regulator’s job to a trapeze artist — one who is required to do the fine balancing act.
“The regulator is like a trapeze artist who is walking on a thin rope and balancing the three ends or the trinity of development, regulation, and investor protection. Trust me, it’s not an easy walk as a regulator,” he said.
Singh said the markets regulator has formed 16 working groups to simplify regulations and harmonise norms around the disclosure and listing regulations and also delisting regulations.
“Regulators are often a convenient scapegoat and can be blamed for the worsening economic conditions in bad times and for hampering growth at good times. There is a problem of selective bias and social media makes the matters worse by blowing the negative aspects out of proportion,” Singh said, while explaining the role of Sebi in bringing transparency in the market, ensuring investor protection, and in facilitating innovation.
The Sebi official urged the industry to participate more in the consultation process and submit their suggestions on various regulatory changes the board proposes.
“We don’t get enough feedback but hear about issues only after the norms get notified,” Singh said.
Sebi has recently formed an industry standard forum for addressing the implementation challenges with norms like rumour verification by listed companies, core Business Responsibility and Sustainability Reporting and the prevention of insider trading.
Damodaran highlighted the need of having a sunset clause with regulations so that norms can be reviewed every five years.
[The Business Standard]
