The Credibility Crisis Facing India’s Market Regulator
India’s market regulator, the Securities and Exchange Board of India (Sebi), is currently embroiled in a controversy that has raised questions about its credibility. The crisis centres around multiple allegations of conflict of interest against its chief, Madhabi Puri Buch. Top fund managers and political parties have brought these charges to light, threatening to overshadow the bullish performance of India’s equity markets.
The Allegations Against India’s Market Regulator
The allegations against Ms Buch emerged in early August when Hindenburg Research, a US-based short-seller, accused her and her husband of holding investments in an offshore fund associated with the Adani Group. This accusation implies that Sebi has been slow to investigate Adani over allegations of accounting fraud and market manipulation.
Conflict of Interest Concerns
Further accusations came from India’s main opposition party, Congress. They have alleged that Ms Buch received rental income from a company she was investigating. Additionally, there are claims that she held an “office of profit” at ICICI Bank, continuing to earn large sums through Employee Stock Ownership Plans (Esops) long after leaving the bank.
Internal Dissent within Sebi
The controversy escalated when around 1,000 Sebi employees staged a rare protest outside the regulator’s headquarters, demanding Ms Buch’s resignation. Employees cited a toxic work culture, characterised by immense pressure and public humiliation, as reasons for their discontent. Sebi publicly dismissed these claims as “misplaced,” but protesters called for an immediate retraction of this statement.
Impact on India’s Equity Markets
Despite the allegations, India’s equity markets remain among the world’s best-performing this year. Foreign investors have pumped in over $6bn (£4.5bn), and millions of new investors have opened accounts to invest in mutual funds and initial public offerings (IPOs).
Investor Sentiment
For now, global investors seem unfazed by the controversy. However, analysts warn that things could worsen if the situation escalates. Institutional money could flee if internal warnings about compliance issues surface, leading to a potential pullout by retail investors.
The Role of Sebi’s Board and the Government
Experts have called for Sebi’s board and the Indian government to step in and address the allegations against Ms Buch. The government’s silence on this matter has been criticised, with calls for a credible investigation authorised by higher authorities like the judiciary or the government.
Possible Outcomes
With pressure mounting from both inside and outside Sebi, speculation is rife about Ms Buch’s future. Some suggest that her current three-year tenure, ending in February 2025, might not be renewed. A resignation or suspension would likely be viewed as an admission of guilt, which neither Ms Buch nor the government would prefer.
Looking Forward
The Buch episode serves as a learning experience for Sebi and other Indian regulators like the insurance watchdog and the Competition Commission. Strengthening disclosure rules and compliance norms for top officials are critical steps toward restoring credibility and ensuring transparency.
Global Perspective on Regulatory Standards
In developed countries, standards for heads of regulatory bodies are much more stringent. Officials are often required to divest from direct holdings in entities that could pose a conflict of interest. Indian regulators may need to adopt similar practices to maintain investor confidence and uphold market integrity.
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