IOSCO asks Sebi to strengthen its supervision of mkt entities

Lauding Sebi's 'well developed' regulatory and supervisory regime, global body for securities regulators IOSCO has asked the Indian watchdog to further strengthen its supervision of various market entities including fund managers.

In its detailed assessment report on Indian securities markets, the International Organisation of Securities Commissions (IOSCO) has also suggested that Sebi strengthen the stress-testing procedures of the central counterparties (CCPs) and to improve the liquidity risk management.

Releasing the IOSCO report, Sebi today said that it has initiated the process to strengthen the stress testing procedures of CCPs.

Sebi also said that it is carrying out theme based inspection of various market intermediaries, mutual funds, depositories and stock exchanges among others.

"Sebi has built the reputation of a credible enforcement agency. The level of enforcement action taken by Sebi is very high," the Indian regulator said.

"Sebi has used warnings and letters of deficiency to address findings from inspection reports, although in a few cases 'harder' measures, such as disgorgement and payment of money under adjudication or consent proceedings, have been imposed. The enforcement actions taken by regulator are very high compared to other jurisdictions," it added.

Regarding mutual funds, Sebi has taken several steps to re-energise the industry, to increase product penetration especially in smaller towns, for regulating distributors and issues concerning investor protection and mobilisation of household savings for the growth of the economy.

The comprehensive guidelines for registration and supervision of mutual funds has been issued by the Indian regulator by way of Sebi (Mutual Fund) Regulations, 1996.

The supervision system of mutual funds is a two-tier system, i.E., supervision by trustees on one hand and Sebi on the other hand. Mutual funds are required to periodically report their activities to Sebi and a risk-based approach is followed for periodic inspections.

In the respect of better auditing and accounting standards in the securities market, Sebi said the Companies Act and Chartered Accountants Act provides a framework to maintain objectivity and integrity of accounting and audit.

Besides, central government has set up Quality Review Board (QRB) for reviewing the quality of auditors.

The Companies Act, 2013 contains provisions for establishment of an independent quasi-judicial agency, the National Financial Reporting Authority, to oversee the functions of auditors and to ensure scrutiny and compliance with accounting and auditing standards, Sebi noted.

Sebi has set up a Forensic Accounting Cell in February,2012 to improve quality of financial information disclosed and to assist in detection of financial irregularities, the regulator said while releasing the IOSCO report.

To enhance the quality of financial reporting done by listed entities, the regulator has set up a Qualified Audit Report Review Committee on which ICAI, bourses and others are represented, Sebi added.

The Indian market watchdog said it has already taken action to recommend amendments to the Securities Laws to provide for finality of settlement obligations and netting.

Additionally, in late June, Sebi's board has also approved amendments to Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 with respect to netting, settlement finality and rights of Clearing Corporations over collaterals.