Market regulator Sebi urges industry to step up voluntary compliance

Enforcement cannot be the only solution, says Sebi WTM; Varshney assures Sebi's KYC infrastructure strong

Cautioning the capital market ecosystem of the downsides ‘broken trust’ can bring, Kamlesh Varshney, Whole Time Member (WTM) of the Securities and Exchange Board of India (Sebi), on Friday urged the industry to step up voluntary compliance.

Addressing a gathering of capital market participants, Varshney said enforcement cannot be the only solution for each violation and all participants have to act responsibly.

He urged them to not break the trust and conduct ‘smell tests’ within their ecosystem.

“Enforcement is only to give a message to participants that the regulator is watching you. Enforcement cannot be against every violation. These violations need to be corrected through voluntary compliance,” Varshney explained.

“The trust of the investor is very important. If that trust is broken, all this growth story will get a lot of hurdles,” he added.

The market regulator recently barred 10 entities from the market, including research analysts and guests appearing on television channels and doling out stock recommendations.

These guests made profits by sharing these recommendations to their connected entities before broadcast and then squaring off their positions.

Varshney, who issued the order, asked channels to choose guests responsibly.

“It is the responsibility of the TV channel to see if the guests are transparently giving advice or if there is manipulation. They may not have surveillance like us but they can conduct smell tests and see if something wrong is going on,” he said.

On the front-running cases in asset management companies, he urged managers to have control mechanisms and checks on such practices.

On the recent instance of lapses in Know-Your-Customer (KYC) procedure, at a Paytm subsidiary — and regulatory action by the Reserve Bank of India (RBI) — Varshney assured the infrastructure within the Sebi ambit is ‘strong’.

“Not commenting on a particular case but in general the framework followed by Sebi regulated KYC Registration Agencies (KRAs) is very strong. Sebi along with MIIs (market infrastructure institutions) do thematic inspections and assessments wherever needed,” the WTM said.

Varshney also focused on the need for action to enhance the debt market in India.

“Fundraising in AIFs and other categories has doubled in the last few years. However, the debt market is where we need to do better. We are probably lagging. The cumulative corporate debt as a percentage of cumulative bank credit has gone down from 65 per cent to 52 per cent. Some steps have been taken in the past. Whatever steps are required for the development, they will be taken,” he said.

Speaking at the same event, Sebi WTM Ananth Narayan urged market players to ‘say something if they see something’ about any malpractice observed by them in the ecosystem.

“Sebi is an attentive listening regulator. We need your inputs to tell us what is going wrong and where. If the trust is broken, we will not see financial inclusion or money coming into the ecosystem. We don’t want shocks to happen,” he said.