Regulators should be accountable for delay/laxity in indicting wrongdoers

The scandal at the very top of the National Stock Exchange shows it's a systemic failure which must be rectified quickly

The scandal at the very top of the National Stock Exchange (NSE) has left everyone dumbfounded. The sheer cheek of it is mind blowing.

After such things happen, two questions are often asked of the authorities: did you know what was going on and when you did come, what did you do about it?

Global experience of scandals — whether it is in sports or in the financial markets or in the product markets or anywhere else — shows a common tendency amongst those in charge, namely, to deal with the problem quietly lest the ‘natives get restive’. Pussyfooting is the norm.

This arises partly from the need not to look like fools which they well might be — or crooks, which too they may well might be — and partly from a genuine urge not to rock the boat.

The extraordinary state of affairs at the NSE, especially during 2013-16, illustrates this general proposition perfectly.

The regulator, the Securities and Exchange Board of India (SEBI), knew about the transgressions from 2016. But it has taken it six years to come out with the order indicting the wrongdoers.

Even there, it has chosen not to do some obvious things like tracing the IP address of the ‘unknown person’ — Yogi in the Himalayas, indeed! — who was sending emails to the NSE’s head, Ms Chitra Ramakrishnan.

The snail’s pace at which things proceeded is evident from the fact that it was nearly two years between SEBI receiving complaints about the irregular appointment of Mr Anand Subramanian and NSE submitting the report by its Remuneration Committee on the matter.

Not just that, despite knowing what was happening at NSE, it was only in 2018 that SEBI said it found evidence of the communication between Ms Ramkrishna and the ‘unknown person’.

It’s not as if finding this evidence was enough to generate some urgency, either. It was only by October of that year that NSE managed to respond to queries sent by SEBI, and it was a full year later that show-cause notices were sent to NSE!

It took the six notices about a year-and-a-half to respond to the show-cause notices, that is, by May 2021. SEBI finally issued its order in February of 2022.

Naturally — lockdowns notwithstanding— this has led observers to conclude that SEBI has been hesitant or reluctant to show some despatch. Six years, after all, is a long time to be so lackadaisical in pursuing anything, let alone a scandal of these proportions.

That’s why it is necessary to penalise SEBI and those in charge of it and also to adopt a general principle that all lax guardians will be punished — with forthwith removal from service and that too without benefits.

You can’t be sleeping on the job and expect to be treated well. Non-performance in any field must attract penalties.

Whether it is the repeated failures of the Reserve Bank of India or the occasional ones of the Insurance Development Authority of India or the strange orders of the Telecom Regulatory Authority of India or whatever, supervisors must be punished if they have slept off on the job.

Another question is why do these officials feel they are immune. The utter failure of banking supervision by the RBI has not even been publicly recognised, let alone penalised. And in the Harshad Mehta case it only happened because the prime minister’s name was dragged in.

Not to put too fine a point on it, the problem is that all regulators in India are basically puppets in the hands of the ministers. Or, as a finance minister told a governor of the RBI six decades back, you are just a department of the government, so don’t get too far above your station. That's why if they become too recalcitrant they are shown the door.

In other words it’s a systemic failure which must be rectified quickly.