The Securities and Exchange Board of India (SEBI) has introduced a new regulatory framework that aims to streamline rule-making while allowing for expedited decisions in urgent situations. Announced on February 17, the SEBI (Procedure for Making, Amending, and Reviewing of Regulations) Regulations establish a structured consultation process but also grant the SEBI chairperson the power to bypass public consultations in emergencies. This move has sparked debate over the balance between swift regulatory action and maintaining transparency.
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SEBI’s New Framework
Under the new regulations, SEBI has codified its long-standing practice of consulting stakeholders before introducing new rules. The process includes:
- Seeking input from diverse market participants through committees.
- Publishing consultation papers for public feedback.
- Uploading agenda papers (excluding confidential details) after board meetings.
- Mandating a 21-day public feedback period for new regulations.
However, the most controversial aspect of the new framework is the provision allowing SEBI to shorten or waive the consultation period in cases deemed “emergencies.” This has raised concerns about potential misuse and lack of transparency in critical market decisions.
Why the change?
SEBI argues that the ability to act swiftly is crucial for market stability. During crises, regulatory delays could lead to severe disruptions, investor panic, and financial losses. “This flexibility is essential for ensuring investor protection and market integrity,” says Jyoti Prakash Gadia, managing director at Resurgent India.
Legal and Market Concerns
Despite its intended benefits, legal experts and market participants have raised serious concerns:
- Transparency Risks: Eliminating the consultation period in emergencies could limit stakeholder input and accountability.
- Legal Challenges: If stakeholders perceive rushed decisions as arbitrary, they could challenge them in court.
- Investor Confidence: Unchecked regulatory powers could erode trust in the financial system.
“SEBI’s move ensures quick responses during crises but risks undermining stakeholder confidence if not used judiciously.” – Sangeeta Jhunjhunwala (Partner, Khaitan Legal Associates)
Government’s Push for More Consultations
The government has been actively encouraging increased public consultations in regulatory processes. The Economic Survey and the Union Budget 2023-24 emphasized the need for transparency, recommending that financial regulators adopt open discussions and independent reviews to assess regulations comprehensively.
Proposed Safeguards for Transparency
To balance urgency with transparency, legal experts suggest:
- Pre-Consultation Mechanisms: Engaging key stakeholders in preliminary discussions before issuing emergency regulations.
- Public Justifications: Clearly stating reasons for bypassing consultations and publishing them promptly.
- Mandatory Review Periods: Reassessing expedited regulations within a set time-frame to address any unintended consequences.
SEBI’s new regulatory framework is a double-edged sword—while it enhances agility in decision-making, it also raises concerns over reduced transparency. The coming months will determine whether the reforms strengthen India’s financial regulatory environment or lead to increased scrutiny and legal challenges. The key to success lies in how well SEBI maintains transparency while leveraging its new powers for market stability.
