27 July 2008

Transparency in regulators

Ajay Shah has posted a piece on RBI transparency, or rather the lack of it. Benchmarking RBI transparency to global central banks, RBI's transparency level appears very low.

The securities regulator, whose transparency does not have an equal impact on the economics of the country, is also important. Here it scores very poorly. Compare this, the SEC's commission meetings are usually open - meaning that anyone can access the meetings including the press and it is also webcast (available in archival form for old meetings). A brief agenda is published in advance as well. Some meetings are 'closed' because of investigation action etc which needs to be taken - here too, all SEC employees are allowed to sit through the meeting.

By contrast, India's SEBI gives no access to agenda papers to anyone except for the Executive Directors and members of the Board. The meetings are held behind closed doors by members of the Board. These are policy based agendas rather than investigation based - there is therefore nothing sensitive in the agenda or the discussions. In fact specific market data and specific investigation data is never disclosed to the Board, thus there is no need for any closed door meetings at all (this is because of the nature of SEBI which has both non whole time and whole time members, a dichotomy which does not exist with the SEC).

In a bizarre turn of events last year, executive directors who are heads of the various departments at SEBI were no longer invited to attend the full Board meeting. They would be invited only if and when the Board agenda which relates to their area was being discussed. This has resulted in a complete compartmentalization of thinking in SEBI. Executive directors are the heads of various departments and are key to implementation of the policies of the Board, when one director does not know or understand the nuances of the other areas, it is a clear sequitur that there is no holistic policy understanding or implementation at the regulator.

While it is clear that under the Right to Information Act, 2005 agenda papers of the Board can be obtained by anyone curious (the RBI controversially uses the "information, disclosure of which would prejudicially affect the sovereignty and integrity of India, the security, strategic, scientific or economic interests of the State, relation with foreign State or lead to incitement of an offence" exemption to deny information); to get a webcast of the meeting and make them open to everyone would require introspection by the Board and a will to create transparency in its own functioning. Only then can SEBI rightly claim the moral high ground for enforcing transparency in publicly listed companies.

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