“If regulators have to depend on the executive for the release of funds, the question of independent behaviour by the regulators will be jeopardised. It is necessary to carefully consider the pros and cons of taking (away) the financial autonomy from the regulators,” the Sebi Chairman said.
Bhave was reacting to reports that the government plans to make regulators deposit their surplus funds with the Consolidated Fund of India.
“Currently, there is a line of thought and you must have read about it in the media that regulatory authorities should not be allowed to have funds of their own and that these funds should be merged with the Consolidated Fund of India,” Bhave said. Stating that regulatory autonomy vis-à-vis the executive is not only necessary, but also essential, he pointed out that in the case of Sebi and insurance watchdog Irda, financial autonomy was built into the legislation by way of providing that such authorities would establish a separate fund into which the fees paid by market intermediaries would be credited.
At present, the money coming to regulators like Sebi by way of penalties is credited to the Consolidated Fund of India. The Sebi chairman, however, did not elaborate how the proposal would be implemented or on the account heads that the regulator would be able to retain as and when the proposal was implemented.
“Such funds are to be used by these authorities to discharge the functions enumerated in the law,” Bhave said, though he conceded that since Sebi is a comparatively new body, it was still in the process of evolving a smoother regulatory-executive interface. He also highlighted the need for a review of existing laws regarding appointment and removal of members of regulatory bodies.
“Regulators do not enjoy protection in terms of the conditions under which their service can be dismissed by the executive,” he pointed out. He added, however, that there is no tradition of removing members at Sebi.
“Whether it is sufficient to rely on tradition or whether we need a better legal mechanism with checks and balances needs to be debated so that this important aspect of governance is not ignored,” he observed. Elaborating on the current state of the regulator-executive interface, Bhave reminisced how brokers used to go to Finance Ministry for resolving issues even after the formation of Sebi in the early 1990s.
“The first chairman of Sebi, G V Ramakrishna, once famously remarked... the BSE brokers should know that the route from Dalal Street (where the BSE is situated) to Mittal Court (where Sebi was then located) is not via North Block (which houses the Finance Ministry),” he said. In the initial days after Sebi was set up, brokers had not got used to the idea of a regulatory body that would independently set regulations. Regulation of capital markets used to be a part of the Finance Ministry’s functions till the formation of Sebi. “However, this tension between the executive and the regulatory bodies is not just a phenomenon of the early stages of regulation, but even now it continues,” he concluded.