Sucheta Dalal :Regulatory reform: Whose consent?
Sucheta Dalal

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Regulatory reform: Whose consent?  

August 30, 2011

Arbitrary and opaque consent orders must stop

Sucheta Dalal

SEBI’s decision to bring consistency to its consent system is long overdue and probably triggered by a PIL on the issue. Moneylife has repeatedly exposed, with examples, the arbitrariness and poor transparency in SEBI’s consent proceedings. We have also written on how some entities have got away with illegitimate ‘administrative warnings’ (there is no provision for these in the SEBI Act) or allowed to file for consent even for grave and repeated offences (some for as many as even six or seven times).

Under this process, the investigation is closed by paying a settlement amount without admitting or denying wrongdoing. The consent order has to detail the charges and the amount paid in settlement. However, SEBI officials often issue opaque orders at their whim. Capital market circles attribute this arbitrariness to corruption and arrogance or both. Since Parliamentary oversight of SEBI is sketchy, nobody ever questioned the regulator. However, the PIL has triggered action. Another push factor was the Supreme Court’s comments that forced on SEBI the ignominy of restoring three orders (by a two-member bench of its own board) after they had been dubiously declared void (or non est) to protect former SEBI chairman CB Bhave.  

SEBI’s move to bring consistency to consent orders is welcome, but it will become meaningful only if it undertakes an independent exercise to evolve a clear framework that prescribes minimum penalties for an exhaustive list of clearly specified offences and that ‘speaking orders’ are issued in each case after detailing charges against the entity filing consent terms. Further, these consent orders must be posted on SEBI’s website on a database that is searchable by the name of the entity or under various intermediary categories. A SEBI director has assured Moneylife that he will take up these suggestions with the board. We will watch the developments very closely.

-- Sucheta Dalal