06 December 2011

Consent order of SEBI

I have been quoted in today's Hindu Businessline - "Mr Parekh has always held that the consent order process is not transparent. “The final order does not even clearly mention what the allegation was in the first place,” he says."

The quote is accurate (except for the "has always held"), but seems to suggest that I was attacking the consent process wholesale. I was not. In fact, I was talking about a particular case which is why the grammer is "the final order". In fact almost all cases of consent have reasonably set out the charges. At the same time, I do believe that more transparency in both the process and in the final order is welcome or even necessary.

I do strongly believe in the consent process in the Indian securities market and there are areas of distinction between the US system and the Indian:

a) the India statute talks about consent in S. 15T (2) of the SEBI Act (it says that no consent order can be appealled). There is thus a statutory explicit/implicit power available. The US law does not.

b) the Indian process takes places mainly outside the regulatory system - an independent committee headed by a retired judge looks at the charges, evidence and other factors. The US system is secretive and completely in house. This reduces or eliminates the problem of fairness and objectivity.

c) The US settles cases even before fact finding is completed - this is quite unfair. The Indian process prohibits settlement before a complete fact finding is over (unless there is a technical or such violation where the facts speak for themselves e.g. dislcosure violation under takeover regs).

d) Given the above safeguards, I think India needs a consent process desparately - the appellate tribunal SAT is perhaps the only tribunal in India with close to 0 pendency. SEBI orders which typically lagged a violation by 8-10 years have come down dramatically. In fact, other govt. agencies and regulators need to introduce the system.

e) Often the problem is not that violators get away too easily - but that they are dealt with too harshly. In view of criticism, the regulator and the high powered committee could be overly harsh.


Avaran said...

Do you think our consent order process will get impacted by the US court strike down of Citi's plea bargian? While the US order was jurisdiction specific, the observations need not be. The court seemed to be saying that two people are free to settle outside court but they cant impinge upon a third interested parties right to challenge the settlement!!!

Avaran said...
This comment has been removed by a blog administrator.
Sandeep Parekh said...

I just finished a column in Outlook Business on exactly the very topic you raised - so you will have to wait for a week or so to see my view.