How and whether financial regulators should be independent? UK Sinha’s view…

This exit interview of former SEBI chief UK Sinha has many interesting details about SEBi functioning and challenges. But it his views on regulatory independence which could catch immediate eyeballs. After all we just don’t know SEBI’s thinking on the matter:

What was the most toughest, most challenging part of your job in the last six years?

There is a perception and an ongoing debate in this country on how independent a regulator is and what should be the level of interference from the government. I have said it in the past and as I am leaving, I would like to reiterate it. Successive governments have been very, very supportive of SEBI and without the government’s support, SEBI would not have been able to achieve even a fraction of what it has achieved. Whenever we required any changes in regulations or laws, we got full support from the government. If, for example, when we were dealing with the collective investment scheme (CIS) matter and we realised that there is a lacuna in the law and the law would have to be amended, in 2013 the then government came out with three rounds of ordinances and this is rather unprecedented. When the government changed and the next government came, and they were in the position to pass this law, it was one of the first things they did. So we have got full support from the government.

The question of independence of the regulator has to be taken, not at a superficial level, but at a very intensive level. And that intensive level is, what is the role of a regulator? A regulator, and especially SEBI, is created by an act of Parliament, so the regulator has independence in operational matters. But the SEBI board has representation from people in the government. So SEBI has to work within the parameters of the policy requirements of the government.

For example, if the government of the day decides that there will be no minimum public shareholding in public companies, there is nothing more that SEBI can do. This is the law of the land. Take the example of foreign portfolio investors (FPIs). If the government of the day decides that there will be no inflows allowed for FPIs, there is nothing that SEBI can do. But once that policy decision has been taken, then the role of SEBI starts. As an expert body, we have full freedom to devise our regulations.

And once the regulations have been framed, the actions which are taken in specific cases…what can I say about the government interfering with me, even I can’t interfere with my investigation officers, I can’t interfere with my adjudication officers, I can’t interfere with my whole-time members. You’ll be surprised that many orders that are passed by SEBI, I come to know of them once they have been put on the website. That is the level of independence given to our officers. So it’s a wrong notion that the government of the day interferes in our work.

So the challenge you were talking of – about how the government interface has been – my opinion is that the government interface has been very, very positive. It has only helped in the strengthening the working of the SEBI.

Let me give you an example. The law of SEBI which was amended in 2014, has prescribed that the monetary penalty which will be imposed by adjudication officers, they have no discretion in that. So we said, ‘look this is not going to work out. There are accentuating circumstances where it has to be done.’ So the law was amended in 2014, and it said that based on certain criteria in the amended law, the officers can exercise their discretion. But there has been a case in the Supreme Court where the court has held that these amendments are prospective. So they can’t be applied retrospectively. The problem is that 80-85 percent of the cases we have on our hands today are prior to 2014. We have been urging the government to pass an amendment and issue a clarification that this also applies to retrospective cases. The government may have its own compulsions, and fine, they are not able to do it. But because of that, the adjudication process has been suffering. That is the point I’m making.


Actually independence is too strong a word for regulatory bodies which are created by the government. Likes of RBI, SEBI etc. get powers because they are formed by the government. So they can never be independent from the government.

The word independence should be replaced by autonomous and it is on latter we should judge regulatory actions. Given the broad policy objective set by the government, has the regulator gone about achieving it without interference. But then autonomous is hardly as glamorous as independence…

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