Sebi 2.0: Wyman report recommends more teeth to regulator

Although the investor protection and broadening the markets' goals of the Securities and Exchange Board of India (Sebi) may be in place, the market regulator wants to expand its responsibilities.

The Sebi board will look at some new responsibilities to be taken up when it meets on the June 25, report Nayantara Rai and Sajeet Manghat of CNBC-TV18. Also read: Sebi makes certification mandatory for 'associated persons' Enhancing Sebi's powers For nearly a year, Sebi chairman Upendra Kumar Sinha has been working on broadening the scope of the regulator's functions. To this end, the Sebi appointed international consultant Oliver Wyman to recommend new responsibilities that the regulator can take up. These responsibilities will not only plug any gaps in the Sebi's armour, but also bring it on par with global practices and regulators. The consultant came up with report and its recommendations. Recommendations It included consolidating the supervision of all types of investment schemes under the ambit of one body. It also included a legislative review on the comprehensiveness of investment schemes for clarity's sake. It recommended on creating a separate regulator for auditors with a clear role, enforcement power and resources similar to the public company accounting oversight board (PCOAB) in the US. The Sebi should set up an internal team to supervise exchanges and their oversight of listed companies. The report added that the Sebi should enhance risk management capabilities, including co-ordination mechanisms, with other regulators like the Reserve Bank of India (RBI). It should also focus on channeling household savings through investor awareness and education initiatives. Wyman recommended that the regulator should develop low risk products for retail investors and align distributor commissions, investor incentives and intermediation costs to product categorisation. Sebi should expand its ambit set up an ombudsman for the capital markets, in line with the banking and insurance industry and set up a self-regulating organisation framework that will create a centralised self regulatory organisation (SRO) for exchanges, and a non-exchange SRO with basic non-market regulatory responsibilities. The report also recommends significant organisational changes within Sebi. These include acquiring a skill set to manage non-equity segment like corporate bonds and structured products. A differentiated approach to investor segments based on risk profile has been suggested. Wyman also recommends: - Principle-based approach to tackle fraud and opacity
- Risk-based approach across entities and soft enforcement skills
- A principle-based approach in relations to fraud, compliance and disclosures
- A transition to a risk-based approach across entities
- And soft enforcement skills like public censure and warning letters But the game-changing recommendation calls for Sebi to institute a whistle-blower policy. For these recommendations to be effective, the report says that the Sebi must ramp up its manpower to 800 people. It also calls for doubling the resources dedicated to surveillance from the current 120 to 280; 35 percent of Sebi's strength. Re-jigging Sebi's management Organisational changes are also recommended from creating the post of COO, to separating the focus on retail and institutional functions, to delegation of powers so that  executive directors and wholetime directors take just 30 percent of the decisions, and officers reporting to them being empowered to take up to 45 percent of the decisions. The Sebi board will take up these recommendations when it meets on June 25. It will have to move quickly, if the changes are to be implemented by 2018.