SEBI plans to decelerate its regulatory drafting process, prioritizing thorough consultations and data analysis before introducing new guidelines. This measured approach aims to reduce the frequency of regulatory rollbacks and inconsistencies, which have previously caused market uncertainty.

SEBI Urged to Exercise Caution in Reforming Legacy Regulations

As the Securities and Exchange Board of India (SEBI) embarks on a new phase under Chairman Tuhin Kanta Pandey, the regulatory body is signaling a shift in its approach to market oversight and rule-making. In recent discussions, Pandey outlined a strategy that emphasizes careful deliberation and stakeholder engagement before enacting regulatory changes.

Key Strategic Shifts

Slower, More Consultative Rule-Making: SEBI plans to decelerate its regulatory drafting process, prioritizing thorough consultations and data analysis before introducing new guidelines. This measured approach aims to reduce the frequency of regulatory rollbacks and inconsistencies, which have previously caused market uncertainty.

Review and Simplification of Existing Regulations: The regulator will systematically review current rules to identify pain points for market participants, with the goal of streamlining and simplifying the regulatory framework.

Strengthening Internal Capabilities: SEBI intends to bolster its internal mechanisms for evidence collection and order formulation. This is expected to enhance the quality of enforcement actions and reduce the incidence of legal disputes.

Learning from the Past

Under former Chairperson Madhabi Puri Buch, SEBI operated at a breakneck pace, issuing nearly 200 consultation papers and 600 orders in three years. While this proactive stance helped address market misconduct and expand regulatory coverage, it also led to frequent regulatory changes, sometimes affecting well-functioning systems and creating uncertainty for market participants. Examples include new fee regulations for advisors, changes to mutual fund fee structures, mandatory quarterly reporting for SMEs, and the introduction of a T+0 settlement cycle.

The Importance of Caution

The editorial cautions that while regulatory reform is necessary, SEBI must be mindful of the historical context behind existing rules. Many of these regulations-covering mutual funds, stock brokers, insider trading, and capital market practices-were instituted in response to past market abuses and scandals. For instance, strict client fund segregation rules for brokers were introduced after the Karvy Stock Broking episode, and rigorous IPO scrutiny followed major frauds in the 1990s and 2010s.

The Road Ahead

Moving forward, SEBI is encouraged to conduct comprehensive impact assessments for proposed regulations and address concerns from market participants about the regulatory burden. At the same time, the regulator should avoid dismantling legacy rules without due consideration, as these have played a crucial role in safeguarding market integrity.

Conclusion:

As SEBI balances its dual mandate of market development and enforcement, the message is clear: reforms should be thoughtful and incremental, ensuring that the hard-earned stability and trust in India’s capital markets are preserved.

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