SEBI’s recent notification allowing its chairperson to bypass the usual consultation process for regulatory changes has raised concerns over transparency and potential for overreach, with experts seeking clarity about ‘exigencies.’
Traditionally, the market regulator has sought feedback through discussion papers from industry participants, legal experts and the public before making regulatory amendments.
Though public consultation was encouraged, it was never a statutory requirement — allowing the watchdog to pass certain rules without any feedback. SEBI recently mandated a 21-day public consultation period before implementing regulatory changes, except in exigent situations, where the chairperson can shorten or waive this requirement.
Regulatory overreach?
While this exception aims to preserve SEBI’s ability to act swiftly, legal and market experts argue that without clear guidelines, it could lead to arbitrary decision-making.
“While this discretionary power ensures regulatory agility and the ability to respond swiftly to crises, it simultaneously raises pertinent concerns regarding transparency, predictability and the potential for regulatory overreach,” said Tushar Kumar, an advocate at the Supreme Court of India.
Frequent use of this waiver, market participants warn, could erode industry confidence, raising fears of preferential treatment, inadequate safeguards and credibility risks for the regulator.
Need for clarity
Although the board must ratify the chairperson’s decision, market experts are calling for clear, publicly available criteria for what qualifies as an “exigency” and requiring detailed justifications for each waiver.
“The subjective nature of the term ‘expedient’ creates a risk of arbitrary application; the impact on the market and industry hinges on the judicious exercise of this power,” said Kunal Sharma, Partner at Singhania & Co. “The absence of robust, clearly-defined criteria may lead to regulatory uncertainty and potential legal challenges, as stakeholders may question the legitimacy of regulations passed without consultation,” Sharma said.
Kumar echoed this concern, calling for the scope and rationale for invoking such powers to be clearly articulated to ensure that “exceptions do not become the norm, and principles of natural justice and participatory governance remain intact.”
Experts also suggest periodic reviews of waived regulations to assess their justification and effectiveness of such regulations.
Likely exigencies
While the regulator has not specified what constitutes an exigency, experts suggest the waiver could be used in cases of systemic risks threatening market disruptions, cybersecurity breaches in market intermediaries’ infrastructure, widespread market manipulations and global economic shocks.
Situations, where delays in regulatory action could lead to irreparable harm to market integrity or investor confidence, such as the imminent collapse of a systemically important financial institution; and unforeseen technological advancements could also necessitate immediate regulatory adjustments.
Additionally, judicial directives mandating expeditious regulatory action or alignment with global standards could also justify the invocation of this waiver, experts said.
