Sebi seeks major overhaul of securities laws

Sebi seeks major overhaul of securities laws

Move aimed at garnering greater power

Market regulator Sebi has sought major overhaul of the securities laws including greater authority to nail manipulators by way of powers to conduct ‘search and seizure’ operations and to demand information from any person in relation to its probes.

It has also proposed the recovery of monetary penalties through Income-Tax arrear mechanism, setting up of special courts to deal with criminal prosecution for violation of securities laws and recognition of Sebi’s counsels as public prosecutors.

The proposals have been discussed by the Sebi board and are being sent to the Ministry of Finance for necessary amendments to the relevant securities laws, a senior regulatory official said.

Sebi has decided to pursue these proposed amendments in view of the challenges faced by it in areas such as the recovery and realisation of monetary penalties and regulation of pooling of monies from public by schemes including those in the nature of collective investments, among others.

The market regulator has been facing impediments on its investigation and enforcement powers with regard to protecting investments by attachment of assets. It has also faced challenges to enforcement and implementation of its orders, the official said.

In addition, Sebi has been facing restrained in taking necessary actions against market manipulators as it lacks an effective power of search and seizure, and due to limited sharing of information with overseas regulators as well as lack of power to call for information from any person in relation to enquiry or investigation.

The latest proposals by Sebi include the most important ones made in its original recommendations in 2009 and thereafter, as also a few additional measures keeping in mind the recent challenges faced by it, the official added.

As per the revised draft proposals, it has sought powers to recover any unpaid penalty either as arrears of income tax, which is the case with another regulator CCI as well.

There are no specific provisions for recovery of monetary penalties, and the total unpaid amount to it stood at over Rs 117 crore as per the latest data.

Sebi has further said it needs to be empowered to attach/sell movable and immovable properties without recourse to court of law, in order to take effective enforcement action if the concerned entity has either disappeared, or raised money in contravention of securities laws, or has fraudulently diverted the money raised from public.

Such powers would help Sebi enforce compliance with its directions to refund monies collected from public by illegal and to recover disgorged illegal gains.

Regarding search and seizure powers, Sebi has said it can carry out such operations presently only after the approval from the Chief Metropolitan Magistrate.

However, this renders the power ineffective due to the confidential nature of investigation and delays involved in obtaining the said approvals. Therefore, a direct power of search and seizure would strengthen Sebi’s powers of investigation, the regulator has said, while adding that CCI also enjoys similar powers.

Sebi has further said that it should be expressly empowered to obtain or furnish information to other regulators in matters relating to prevention, detection and investigation of violations in respect of securities.

The regulator also said that its existing power to call for information is restricted to persons associated with the securities market or banks/corporations/authorities established or constituted under Central Act/State Act even though they may have information that might be related to a securities market transaction being investigated by Sebi.

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