Sebi calls for provisions to protect autonomy

The capital market regulator has sought provisions to ensure the autonomy of regulatory bodies. “It is imperative to make sure there are adequate supportive provisions in the laws and rules to maintain the autonomous character of these institutions,” said C B Bhave, chairman, Securities & Exchange Board of India (Sebi).

Bhave’s statement comes close on the heels of a stand-off between the Reserve Bank of India (RBI) and ministry of finance on the issue of autonomy. Early this year, the central bank objected to an ordinance that gave a committee headed by the finance minister overriding powers in the event of inter-regulatory disputes.

The Sebi chief also expressed his discomfort with the idea of merging regulators’ funds with the central government’s Consolidated Funds of India. “Currently, there is a line of thought that a regulatory authority should not be allowed to have funds of their own and that these funds should be merged with the Consolidated Fund of India,” Bhave said, while delivering the A D Shroff Annual Public Lecture at Indian Merchants’ Chamber.

Bhave is of the view that execution of regulatory functions would be severely damaged if regulators are dependent on the executive for funds. “If the government finally accepts this line of thinking, substantive damage will be done to the autonomy of regulatory institutions,” he said.

“If regulators have to depend on the executive for release of funds, the question of independent behaviour by the regulators will be jeopardised. It is necessary to carefully consider the pros and cons of taking financial autonomy from the regulators,” he explained.

In the case of Sebi and others like Insurance Regulatory Authority of India, this autonomy was built into their legislation by provisioning a separate fund into which the fees paid by market intermediaries are credited, he added.

Bhave, whose term at the helm of Sebi expires in February, also touched upon the executive appointing heads and members of the capital market watchdog. Adequate provisions are required to make the regulator autonomous “starting with the process of appointment and terms of removal of the members of the regulatory apparatus, even while recognising that the appointments will be made by the executive,” he said.

He added that “regulators do not enjoy protection in terms of the conditions under which their service can be dismissed by the executive”.

“Whether it is sufficient to rely on tradition or whether we need a better legal mechanism with checks and balances need to be debated so that this important aspect of governance is not ignored,” he concluded.