Autonomy and accountability of a regulator: case study of the securities market regulator, the SEBI

Abstract

With the paradigm shift of recognizing the significance of market friendly processes,market regulatory agencies, such as SEBI, have been set-up in the country to ensure apredictable regulatory environment and participatory decision making. Has this formof economic governance resulted in tangible gains for stakeholders concerned? TheSupreme Court in one of its judgments relating to SEBI has observed Integration ofpower by vesting legislative, executive and judicial powers in the same body, infuture, may raise several public law concerns as the principle of control of one bodyover the other was the central theme underlying the doctrine of separation ofpowers . This suggests that the constitution of regulators, need examination sincethere could be a chance for them to exceed their powers. The JPC (2001) had mademany observations relating to functioning of SEBI and regretted in noting that a fulldecade after the establishment of SEBI, SEBI s performance has fallen far shortof the expectations reposed in it .These concerns raise issues regarding the factors and dynamics which explain thefunctioning of the regulator - whether the regulator is autonomous in taking decisions,is accountable for its actions, has adequate powers and resources for its effectivefunctioning. This study is an attempt to investigate these issues in relation to SEBI.The study, however, does not evaluate the economic or financial impact of SEBI sregulatory activity. The methodology adopted has been, primarily a study of thesecurities legislation both in India, the US and the UK; a study of the framework ofinstitutional design of independent regulatory authorities suggested by IOSCO andOECD and guided interviews with officials concerned. The study concludes that theSEBI Board lacks independence; the prescribed accountability measures for theregulator are ineffective, other than the appeal mechanism. It has adequate authorityand financial resources but lacks human resources with proper skill set. Accordinglyrecommendations have been made to amend the statutes since it is the statute whichestablishes a regulator and is the weapon of governance for it.