SEBI plans to experiment with 'shift' in regulatory architecture: Chairperson Madhabi Buch

The Securities and Exchange Board of India (Sebi) is in the process of developing a new regulatory framework that will involve more stakeholders.

During a news conference on July 24, SEBI Chairperson Madhabi Puri Buch stated that the regulatory body's circulars state "what" is to be done but not "how" it is to be done. The government agency in charge of enforcing these rules has decided to experiment with letting businesses themselves determine how the rules should be carried out.

Regulatory requirements can be met through the establishment of a forum under the exchanges' aegis, with representation from industry groups and professional organisations.

It is recommended that the standards be defined in collaboration with SEBI to avoid "overengineering" or misalignment with regulatory aim.

They've already notified participants via letter since "this is an architectural shift that we wish to experiment with in SEBI," she said.

She elaborated on the novel aspect of the regulatory framework by noting that SEBI receives a great deal of useful advice from its advisory committees when striking a balance between the requirements of ensuring ease-of-doing-business and market integrity. After collecting public feedback, these inputs are used to create new regulations or amend current ones.

However, SEBI notices two things occur during rule implementation. The first is the uncertainty among market participants as to how the rule will be implemented, and the second is whether or not the regulation will be adequately enforced.

The first thing the regulator does is issue a set of FAQs in response to the public's questions. If there are still concerns, another circular with more information will be sent out.

After giving it some more thought, we've concluded that we're discussing implementation standards. She emphasised that the issue was not with the regulation itself, but rather its application.

And, "this task is best done by the industry bodies themselves," she said.

The authority has prior experience with this method of operation in the field of mutual funds. The Association of Mutual Funds in India (AMFI) may, for instance, set the criteria for valuation, which would then be followed by everyone, as stated in a valuation circular. Or, the benchmarking organisation may be chosen by the industry association, as stated in a benchmarking circular.

"Our regulations will take us to a certain stage of expressing the regulatory intent (or what is to be done), but a lot of the ease-of-doing-business lies in the 'how' it is to be done," she said.

A recent circular, for instance, addressed the issue of rumour verification for publicly traded corporations. According to the rules, a company must confirm or reject a rumour in the market if it is responsible for a price change.

Talks with industry players led to the regulator's realisation that businesses often use a media-tracking service. She emphasised that it was never the regulator's intention for the corporations to invest "hundreds of crores" on a separate system.

"What is the answer to this (the ambiguity around the responsibilities of businesses)? She explained that if the industry were to establish criteria for tracking and responding to rumours, "it would be to say that if the media-tracking agency has the following coverage, this would be considered adequate for the purpose."

Buch noted that "specific rumours" is another issue the sector has addressed in regards to this law. She advised that the industry establish a norm for what "specificity" entails so that "everybody knows these are the rules" and can act accordingly.

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