Sebi increasingly trying to spot global links in many of its investigations

Information sought from foreign counterparts at a multi-year high

The Indian stock market regulator reached out to its counterparts in other countries more often in the last financial year.

There were 29 such requests for the financial year ending March 2020 (FY20) compared to 9 such requests in FY19. The data is part of the Securities and Exchange Board of India’s (Sebi’s) annual report, made public earlier this month. There was a similar increase in the number of requests that foreign regulators made. They rose from 52 in FY19 to 63 in FY20.

The requests are made under an agreement called the Multilateral Memorandum of Understanding Concerning Consultation and Co-operation and the Exchange of Information (MMoU). International regulators share information based on the agreement for regulatory enforcement. Data available since 2011-12 shows that this year is the second-highest number of requests that India has made in a year. The highest was 44 in 2015-16.

“Additionally, Sebi also made ‘fit and proper’ requests to other overseas authorities including securities regulators, government agencies and Self-Regulatory Organizations (SROs) who are not MMoU signatories. Further, Sebi received two unsolicited references with information from two securities regulators...,” according to the disclosure.

Sandeep Parekh, managing partner at Finsec Law Advisors and former Sebi executive director said that information sought is typically for serious offences like money laundering and insider trading.  The rise in numbers is likely a reflection of greater cooperation among the signatories of the agreement.

"These requests are not just rights but also obligations to provide information to one another as signatories of the agreement. A total of 124 regulators are part of the mechanism now," he said.   

A Sebi source said that regulatory details for operations carried out in places away from India’s jurisdiction are better collected by the local authorities.

“They would have better information,” said the person, who added that such requests may well go up with more people trading in stocks abroad.

There were 4,183 requests made globally across all the regulators in 2019, compared to 1,262 such requests made in 2009 according to the data from the International Organization of Securities Commissions (IOSCO).  

The organisation is an association of securities market regulators across countries.  The 2019 IOSCO annual report noted that it is also working on an updated version of the information sharing agreement. It is called the Enhanced Multilateral Memorandum of Understanding (EMMoU).

“The EMMoU provides for additional enforcement powers that IOSCO believes are necessary for continuing to safeguard the integrity and stability of markets, protect investors and deter misconduct and fraud,” said the IOSCO annual report.

Signing the MMoU is required to become an IOSCO ordinary member.  Voting rights are limited to ordinary members in the international body.  

“But, becoming an MMoU signatory often proves to be a challenge for many members, particularly for emerging markets that may need expertise to propose needed legal reforms,”  noted the report.

Many are unable to do so because of required changes, which the international body assists countries to complete. It provided assistance to Botswana, Cambodia and Paraguay in 2019.