Finmin asks Sebi to make greater disclosure in the annual report

Ministry put out a new rule through a gazette notification

The Finance Ministry has suggested several changes in the Securities and Exchange Board of India’s (Sebi's) annual report format seeking “true and full account of its activities”, policies and programmes of the whole year. The new format demands greater disclosure and in-depth analysis of each segment ranging from corporate governance to regulatory action taken by the market regulator. 

Under the new format, Sebi’s annual report will now include the regulator’s source of funds and major area of expenditure; greater disclosure in terms of corporate governance and corporate restructuring for instance details of merger and acquisition deals, regulatory action taken by regulator for enhancing transparency and improving governance, open offers, issuance of observations on offer documents, details of listed companies being wound up, details of defaulter companies, regulatory coordination with Ministry of Corporate Affairs and consequent steps taken by them. 

Giving an overview of the new format, the ministry's Department of Economic Affairs (DEA) said  “The board  shall submit a report to the central government giving a true and full account of its activities, policies and programmes during the previous financial year in the annexure ( new format) appended to these rules. The report shall be submitted within 90 days after the end of each financial year, according to the gazette notification of March 12. Typically, Sebi takes over six months to put out its annual report. 

The new format will have four main parts with an addition for income and expenditure, which at present are released separately by the regulator. Interestingly, the last annual account was of the financial year 2018-19 which was published in June last year. 

Besides, the ministry also suggested inclusion of new chapters such as “new regulations, aims and objectives; Progress or impact assessment of the new regulations/rules introduced during last year, international engagements and so on. 

Unlike earlier, the new format will also have a review of financial markets which includes the analysis of the economic and investment environment in India along with comparison with developed and peer countries and potential risk factors; stress factors indicated through market signals etc . 

The new rule has been put out soon after the ministry asked market regulator to withdraw its directive to mutual fund houses to treat additional Tier I (AT-1) bonds as having maturity of 100 years as it could disrupt the market and impact capital raising by banks.

“This is a very comprehensive disclosure that has been prescribed, keeping in mind the crucial role Sebi is playing,” said JN Gupta, Stakeholders Empowerment Services, a proxy firm.  With the integration of Indian market with the global markets, such disclosure will go a long way in increasing the reputation of the Indian regulator and even securities market. This also shows the relative importance that Sebi has among other regulatory organisations. The previous format was a bit complicated and information was not given in a structured manner.