India has proposed enhanced investigative powers for the markets regulator and conflict-of-interest disclosures by its board, according to a bill tabled in parliament on Thursday.
The proposed changes aim to strengthen the regulator’s ability to examine financial misconduct in the world’s fastest-growing major economy.
Finance Minister Nirmala Sitharaman has proposed the bill be referred to a parliamentary panel, which will consider the legislation.
The legislation proposes allowing the Securities and Exchange Board of India (SEBI) to access records from any relevant individual, financial institution or corporation in cases of market manipulation and fraud. Currently, the regulator primarily relies on data from registered entities and other regulators.
The bill also proposes to improve information-sharing between regulators, including domestic and foreign ones.
SEBI has been facing challenges in investigating offshore transactions, including those tied to the Adani group.
The bill proposes to establish special securities market courts and mandates the regulator close investigations and investor complaints within 180 days.
The bill has timelines, not hard stops, as SEBI board can grant extensions, said Sumit Agrawal, senior partner, Regstreet Law Advisors.
The bill proposes that SEBI board members disclose direct or indirect interests, including those linked to family, to the board. Board members must also recuse themselves when needed, and their disclosures documented, the bill says.
The bill proposes the government can remove a SEBI board member if they have acquired any financial or other interests that are likely to prejudice their functioning.
On Wednesday, SEBI board deferred a decision on a framework to address conflicts of interest among its senior officials which proposed public disclosure of assets, citing the need for additional deliberations.
The bill also proposes expanding the board to 15 from nine members.
Derivatives ban
The legislation proposes granting the government the authority to ban trading in certain securities and notify a list of commodities that are eligible for derivatives trading.
Earlier this week, Reuters reported that a SEBI panel has recommended lifting the ban on derivatives trading in seven agricultural commodities, which have seen repeated bans since 2021 due to inflation concerns.
The bill proposes to allow the government to exempt public sector companies from rules such as disclosure and corporate governance requirements.
The government’s authority to exempt state-run firms can weaken transparency, undermine the regulator’s authority and reduce investor appetite, said Manish Chhangani, a partner at Law Point.
The bill seeks to decriminalise “technical defaults”, which could lower compliance costs for market intermediaries, according to Sunil Gidwani, Partner at Nangia Group.
Currently, penalties for most violations are set at three times the illicit gains or 250 million rupees ($2.8 million), whichever is higher.
The bill proposes capping penalties at 100 million rupees for brokers, while keeping higher limits of up to 1 billion rupees for fund managers and exchanges.
Reuters
