Sebi finding ways to tackle 'regulatory arbitrage'

Last Updated: Wed, May 01, 2013 10:23 hrs

Terming 'regulatory arbitrage' as an emerging grey area, Sebi Chairman U K Sinha today said such inconsistencies need to be addressed for effective implementation of financial market regulations.

Sinha said this issue of regulatory inconsistencies has been discussed during the meeting of Asia Pacific Regional Committee of IOSCO, a global body of securities market regulators from across the world.

Sebi is hosting the three-day meeting of this Committee here, which ends today.

Entities operating across jurisdictions of numerous regulators, within and outside the country, are trying to exploit a scenario that has emerged off late and can be called 'regulatory arbitrage', he said.

Sinha said that Sebi is working on more and more intra- region cooperation among the regulators and the Committee has also created a databse of various regulatory actions taken by watchdogs in the region.

"So if any regulator is taking an action and needs help from other regulator in the region, it can consult this databse. All countries have agreed to work together on this front," he said.

Sinha said that a significant worrying development has been happening with regard to certain international regulators outside the capital markets jurisdiction are taking actions that have impact on the capital markets as well.

"We have debated on this issue (at IOSCO)," Sinha said, while adding that the discussions would be taken to their logical conclusion to address these grey areas.

Within the country as well, certain entities have been trying to exploit the different rules of different regulators for their benefit and Sebi in the past also has raised concern over such matters.

Sinha further said that Sebi is trying to bring in greater private sector participation in its discussions. On regional cooperation, Sinha said tgat investor education material is also being shared among the regulators and the material developed by Sebi has been well appreciated.

"If any regulator wants to use this material, they can do so subject to certain clearances. We can learn and benefit from each other's efforts," he said.

Sinha said that APRC is a significant block on the global arena as the region accounts for about 31 per cent of overall global market capitalisation.

When asked about regulating collective investment schemes, Sinha said there should be a single regulator in this regard.

"But the type of instances that have come to our notice... there is a case for strengthening. Our position is that ideally there should be one single regulator for entire collective investment scheme and all the schemes such as nidhi funds or schemes like chit funds," Sinha said.

Collective investment scheme as a subject for monitoring came under the Sebi ambit after amendment to the act, however there are several exemptions for schemes such as chit funds, nidhi funds, co-operatives, NBFCS.

The Sebi Chief said that they were exempted with a very on the idea was that those would be reporting at small level and there would be local level authorities who would be taking care of them.

"Let there be one single regulator. This regulator will have a very serious task at hand," Sinha said.

Meanwhile, in the interim the capital market regulator has suggested certain amendments to certain sections of the Sebi Act.

"For example whenever we impose penalties for some people those penalty, we find it extremely difficult to collect because the collection mechanism under Sebi Act is vastly different and inferior from the mechanism, for example, given under I-T Act of CCI Act," he added.

Sinha emphasised that his belief was that the government is seriously considering his suggestions.

"We should wait for the whole process to get completed," he said.

Regarding Financial Sector Legislative Reforms Commission's (FSLRC) recommendation of having a single regulator Sinha said that it was given after a lot of consideration.

"So let the debate continue. The government has to finally take a call on that and not Sebi," he noted.

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