Sebi needs to step up criminal enforcement in markets: ESMA

Says Sebi faces three main challenges that impact effectiveness of its regulation on securities market participants

The European market watchdog, European Securities and Markets Authority (ESMA), has lauded Securities and Exchange Board of India (Sebi) for developing a robust surveillance and enforcement system but has called for a stepped-up criminal enforcement framework for capital market violations in India.

A 122-page report by ESMA has noted that the legal authority of Sebi has been strengthened and it now has "broad regulatory, licensing, investigation, supervision and enforcement powers".

"Based on such strong legal framework Sebi has also developed robust regulations for different types of market participants and recognised stock exchange," ESMA said.

ESMA also said that efforts made by Sebi during the last few years to build a strong market surveillance system and separate investigation and enforcement departments have translated into effective enforcement of regulations against unfair trading practices such as market manipulation and insider trading.

However, ESMA said: "An important challenge outside of the control of Sebi is criminal enforcement, which needs to be stepped up".

Moreover, the European market regulator said that Sebi faces three main challenges that impact the effectiveness of its regulation on the securities market participants.

These are strengthening the supervision approach towards market intermediaries, improving mechanisms to ensure compliance of issuers with reporting rules and mechanisms to ensure compliance with accounting and auditing norms.      

ESMA is an independent EU authority that contributes to safeguarding the stability of the European Union's financial system by ensuring the integrity, transparency, efficiency and orderly functioning of securities markets, as well as enhancing investor protection.

In September, this year, the Indian market watchdog had reached regulatory cooperation and information exchange pacts with its counterparts in 31 European countries including Germany, France, Spain and Italy.