In a significant move to modernise India's financial regulatory landscape, the government introduced the Securities Market Code Bill in the Lok Sabha on Thursday. This comprehensive legislation proposes a complete overhaul of the country's securities laws, aiming to consolidate three existing acts into a single, principle-based code.
Key Reforms and Enhanced Governance
The Bill introduces sweeping changes, starting with a major expansion of the Securities and Exchange Board of India (Sebi) board. The proposal seeks to increase the board's strength to up to 15 members from the current nine, aiming to bring in broader expertise and perspectives.
To bolster governance, the legislation mandates stricter norms for board members. They will now be required to disclose any "direct or indirect" interest, including those held by family members, in matters under board consideration. Members with such interests must abstain from related discussions. The Bill also establishes new, clear grounds for the removal of a board member, particularly if they acquire financial or other interests that could hinder their official duties.
The regulatory process itself is set to become more transparent. Sebi will adopt a more consultative approach when issuing subordinate legislation, allowing for greater public input. The regulator will also gain new responsibilities, including periodic self-review, assessment of regulation effectiveness, and a stronger focus on research and capacity building.
Consolidation, Innovation, and Stronger Investor Safeguards
A central pillar of the Bill is the consolidation of three key laws: the Securities Contracts (Regulation) Act, 1956; the Sebi Act, 1992; and the Depositories Act, 1996. This unified 'Code' is designed to reduce compliance burdens and create a framework supportive of technology-driven markets.
To foster innovation, the Sebi board will be empowered to establish a regulatory sandbox for testing new financial products and services. For more effective oversight, Sebi can delegate certain registration functions to market institutions and self-regulatory bodies.
Investor protection receives a substantial boost under the proposed law. The Code emphasises investor education and ensures time-bound grievance redressal, including through an ombudsperson mechanism. Investors will also have more direct engagement in Sebi's rule-making via public consultations.
While certain defaults may be decriminalised, the Bill streamlines penalty powers, linking fines to the gains made or losses caused by violations. It also introduces a structured framework for better coordination between Sebi and other financial regulators through Memoranda of Understanding (MoUs).
Industry Reaction and Next Steps
Commenting on the development, Sunil Gidwani, Partner (Financial Services) at Nangia Group, highlighted the importance of the mandatory interest disclosure for board members, calling it a "crucial corporate governance step." He also noted that the provision to transfer surplus funds to the Consolidated Fund of India ensures public accountability while allowing Sebi operational autonomy.
The Bill has now been referred to a Standing Committee for further examination and consultation before it returns to Parliament for passage. This step indicates the government's intent to incorporate stakeholder feedback into this landmark financial sector reform.
