Is Government stepping up its oversight on SEBI board?

With the NSE co-location scandal putting the spotlight on laxity in regulatory checks and balances, the government seems to have moved to increase its oversight on the functioning of market regulator SEBI.

On Tuesday, the government replaced two junior Indian Administrative Officials (IAS) as its representatives on SEBI board with top secretary level appointees from the Department Economic Affairs (DEA) and Ministry of Corporate Affairs (MCA).

At bureaucracy mercy

Experts say the move suggests that the government was no longer willing to leave the control over the functioning of SEBI with the chairperson alone.  In India, where the bureaucracy is highly hierarchy-conscious, the board of any regulatory body follows the orders of the senior most official, experts say. A SEBI chairman enjoys the rank of a secretary and is answerable either to the Cabinet Secretary, the senior most bureaucrat in the country or reports directly to the Finance Minister and the Prime Minister’s Office.

When Ajay Tyagi led SEBI between 2017 and February 2022, he was the senior most official on the board since joint secretary and additional secretary level officials represented the government. In recent press conferences, Finance Minister Nirmala Sitharaman had said there was a perception in the public that SEBI had not done its job well in probing the NSE co-location scandal and the government was looking into it, even though they had not arrived at any such view.

The investigating agency CBI, too, has told the court that they were probing the role of SEBI officials in diluting the scam related orders.

‘A course correction’

Days after Tyagi quit as SEBI chief, the government on Tuesday replaced KVR Murty, Joint Secretary MCA, and Anand Mohan Bajaj, Additional Secretary DEA, with Ajay Seth, Secretary, DEA and Rajesh Verma, Secretary MCA. Both these officials will be equal in rank to the newly-appointed SEBI chairperson Madhabi Puri Buch.

According to industry watchers, it simply means that while Buch will lead the day-to-day functioning of the market regulator, the board will have three persons of equal footing driving the various initiatives and the oversight. Buch, a private banker for much of her life, is the first non-IAS to head SEBI since its inception nearly three decades ago. 

But JN Gupta, former ED, SEBI, said that the move to have secretary-level officials is not unprecedented. “Originally, the government was represented on the SEBI board by secretary-level officials. In the last couple of years, that board position got downgraded. Hence, Tuesday’s appointment seems only like a course correction and one doesn’t have to read anything further,” Gupta said

Team to be strengthened

SEBI will be filling two more vacancies of whole time members (WTM) where the new board could play a key role. The usual composition of SEBI is that of a chairperson, two WTM’s, two government representatives, a RBI nominee and an outside expert.  A former senior SEBI official told BusinessLine that when DR Mehta was the chairman between 1995 and 2002, a joint secretary in the Ministry of Finance represented the government. Then, the SEBI chairman post was a rank lower than secretary and when controversies engulfed SEBI during Mehta’s tenure, a secretary level official was brought in to preside over the board.

When M Damodaran was the SEBI chairman between 2005 and 2008, a secretary level official Ashok Lehari was replaced by joint secretary KP Krishnan. Later when Pranab Mukharjee replaced P Chidambaram as the Finance Minister, two secretary level officials were appointed on SEBI board when CB Bhave was the chairman. The government representation on SEBI board was again downgraded during the terms of UK Sinha and Tyagi as the chiefs.

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