SMC Bill may set benchmark for financial sector regulation: Eco Survey

Beyond the securities market, the proposed Securities Markets Code (SMC) Bill could set a model for regulatory governance across wider financial and administrative sectors, according to the Economic Survey 2025-26.

"If implemented in both letter and spirit, it could restore and strengthen trust among regulators, market participants, and investors," the Survey, which was tabled in Parliament on Thursday, noted.

The Code spans subjects such as board composition, independence, conflict management, transparency, regulatory sandboxing, investor protection, governance of market infrastructure institutions (MIIs), and ease of doing business.

These reforms can be categorised into three main clusters -- mechanisms for the delivery of services, regulatory governance and Market Infrastructure Institutions.

The SMC Bill, which was introduced in the Lok Sabha in December, seeks to consolidate, rationalise and replace three existing securities laws -- the Securities Contracts (Regulation) Act, 1956; the Sebi Act, 1992; and the Depositories Act, 1996.

The Bill has been referred to a Standing Committee for further consultation.

The Code will expand the number of Sebi's board members to 15 from nine at present, leading to a broader composition ensuring diversity of expertise. It also requires Sebi to periodically review the proportionality and effectiveness of its regulations, preferably through independent external evaluations - a standard the regulator already applies to MIIs.

"The SMC's framework extends beyond the securities market, serving as a potential model for regulatory governance across India's wider financial and administrative sectors. Its principles - transparency, consultation, proportionality, and accountability - could guide the creation of other regulators or the reform of existing ones," the Survey noted.

"By codifying Sebi's pioneering regulatory model, the SMC cements India's leadership in designing modern financial oversight architecture," it added.

Under the Bill, Sebi has been prohibited from directing an inspection or investigation into any matter if the underlying cause of action occurred more than eight years before the date of that direction.

As part of the time-bound approach, the Bill requires investigations to be completed within 180 days. In case of delays, Sebi is required to record the reasons in writing and seek an extension from a whole-time member. It also limits the validity of interim orders to 180 days, although such orders may be extended for up to two years if adjudication, inspection or investigation remains pending.