25-yr old Sebi gears for challenges...new and old

Twenty-five-year old Sebi once again stands at the cusp of a new India and faces challenges both old and new. With collective investment (CIS) and ponzi schemes being the new focus areas, regulatory overlaps are being exploited by corrupt elements. CNBC-TV18's Ashmit Kumar, in the final part of series, explores how Sebi is gearing up for these new challenges.

Also Read: Tackling hydra of insider trading: Sebi at 25 Sahara and Saradha are two names Sebi won’t be forgetting in a hurry. Both these cases and several others that followed in their wake, have increasingly thrown up questions about the jurisdiction and scope of action of not just the market regulator, but other regulatory bodies like RBI. With turf wars increasing, the primary grouse is that the regulators are failing to coordinate and exchange information.
Joseph Massey, MD & CEO, MCX Exchange, says, "Today, there is little synergy between the regulators. The regulators appear to be working in silos. If they work together and show some synergy it will be greatly beneficial for the industry." Also Read: Sinha for broader SEBI role in ensuring financial stability
Experts say the solution to this now lies in forming one super-regulator as proposed by the Financial Sector Legislative Reforms Commission.  The FSLRC has also recommended the enactment of a single Indian Financial Code to replace the 60-odd acts governing the financial sector.
But until such ambitious plans fructify, experts advise a stop-gap arrangement to plug the regulatory gap to tackle ponzi schemes which are being paraded in semi-urban and rural areas as chit funds.
Sandeep Parekh, founder, Finsec Law, "So I think there has to be a very clear demarcation of the boundaries. It can be done by saying that all residual deposit taking activities which do not fall within another regulator, the power must be given over to for example Sebi or the RBI. But there should be a clause, so that there is no gap in the system." Also Read: Pioneer in corporate governance: Sebi at 25
More immediately, experts say Sebi needs to begin the rearmament process by identifying and defining what qualifies as CIS.
MS Sahoo, former whole-time member, Sebi, "As per the current provisions, this discrepancy between a coporate and non-corporate entity needs to be removed to help tackle the issue."
For over four years now, Sebi has been pushing the finance ministry for more power— power to go beyond merely listed entities and chase after errant entities trapping innocent investors. The Saradha chit fund scam has given this drive much impetus.
Sebi wants jurisdiction over all investment schemes that involve a pooling of funds, by any person or company, in excess of Rs 100 crore.  Also, with its powers to attach and sell assets being challenged by Sahara, Sebi now wants the government to define these powers better, especially the power to attach and sell movable or immovable properties, as a part of enforcement action against those guilty of securities market violations.
It also wants the power of search and seizure with the approval of the chairman, as against the current regime that requires approval from the Chief Metropolitan Magistrate.
The other proposals include, powers similar to those of the income tax department for recovery of penalties, additional powers with respect to disgorgement and consent orders and special courts to deal with offences.  But while these proposals to amend the sebi act are pending before the Cabinet, experts say there is a need for a long-term strategy to make the markets more inviting.
Chitra Ramakrishna, MD & CEO, NSE, ”Within India, we have several times talked about the different financial assets, regulatory arbitage between different financial assets and ways to channelise saving into the main markets, whether debt or equity, in to regulated markets. I think it will continue to be a top-order priority for regulators.”
Ponzi schemes, of course, present a more immediate challenge for the market regulator. However, there is the argument that critical functions of financial inclusion and investor protection merit equal importance in Sebi's scheme of things. Clearly, the market regulator has its hands full and will have only a moment to spare to celebrate its 25th anniversary, as it looks ahead at a challenging future.