Sebi chief laments poor compliance with spirit of law among companies

Entities in the Indian capital markets are complying with the regulatory framework put in place by the Securities and Exchange Board of India (Sebi), but while there is compliance with the letter of the law, the track record is poor when it comes to complying with the spirit of the law. 

This message came loud and clear from Sebi chairperson Madhabi Puri Buch when she was replying to queries related to certain market practices by companies and promoters. 

“The reality is that today in our market there is compliance with the letter of the law. Compliance with the spirit of the law is not happening,” she said while addressing the media after a Sebi board meet in Mumbai. 

“I think it is just sad. I think it is nothing else, it is just very sad because people are bright enough, smart enough and they know what is the regulatory intent and the objective of the regulation but to constantly find ways to circumvent and to do things that are technically in compliance but in spirit completely violative is not a good thing,” she added.   

This assumes significance in the wake of recent instances of companies announcing a buyback or a bonus issue, the timing and intent of which has been questioned by various market participants. 

In a related development, the watchdog has also strengthened the regulatory framework for market infrastructure institutions (MIIs), which include important intermediaries like stock exchanges, clearing corporations and depositories. 

While the Sebi chairperson declined to comment on the trigger for the tighter norms, it is widely believed that the developments at the National Stock Exchange (NSE) led to the new rules that have put additional accountability and governance responsibilities on the key management personnel (KMPs) and the Chief Regulatory Officer or Compliance Officer. 

“… everywhere in the system and it is not limited to any one institution. Everywhere in various organisations wherever there is wrong doing, people are aware of it. They shrug their shoulders and say ‘not my job’," she added to a specific query related to Sebi strengthening the code of conduct for MIIs.