Market regulator severely understaffed: Kotak panel

Recommends beefing up Sebi's employee strength

The Securities and Exchange Board of India’s (Sebi’s) experts’ panel on corporate governance has recommended enhancing employee capacity at the market regulator to enable better monitoring and enforcement. 
 

Drawing comparisons with the Securities and Exchange Commission (SEC), the market regulator for US equities, the panel emphasized the domestic market regulator was severely under-staffed. 
 

The panel said the SEC has one employee for each listed company; in comparison, Sebi has just one employee for six listed firms. Further, in the corporate finance department — which handles key functions — the SEC has 15 times more employees than Sebi. The total staff strength of the SEC is 4,554 against Sebi’s 780.
 

Besides improving staff strength, the panel also said there was a greater need for collaboration between Sebi and other agencies, particularly the ministry of corporate affairs (MCA), which oversees the compliance of the Companies Act. Cross-regulator coordination will help ensure effective enforcement, it said. 
 

The panel said Sebi should work extensively with domain-specific regulators such as the tax authorities, the Reserve Bank of India (RBI) and the MCA. It should also seek the help of stock exchanges to ensuring effective investigations. This would help the regulator and exchanges to collate information and evidences to build a strong case for enforcement.
 

Further, the panel recommended setting up a separate department to focus on reviewing financial statements and filings to detect reporting, disclosure and audit failures. This would help the regulator to have access to a robust data processing framework which can be used for investigation and detection of violations involving misleading disclosures.
 

The panel also suggested a “revolving door policy” which involves temporary hiring of private sector employees at Sebi and sending the regulator’s employees to work in the private sector.
 

The panel also suggested the regulator consider outsourcing staff for certain functions, with relevant safeguards.

“Sebi must equip itself so that it can adroitly gather evidence with the objective of investigate to litigate,” it said.
 

According to the panel, Sebi needs to develop teams comprising data scientists, accountants, lawyers specialised in corporate law, software engineers and academicians. The members of such team need to have depth of knowledge within their respective areas as also possess broad expertise across functional areas. 
 

Additionally, Sebi should build its market intelligence through regular review of market research and reports of proxy advisors, the panel said. 

(Kotak Mahindra and associates are predominant shareholders in Business Standard Pvt Ltd)