Sebi should revisit capital requirement of intermediaries, says IMF assessment

Market regulator Securities and Exchange Board of India (Sebi) needs to revisit its approach to capital requirement of intermediaries, a report on Financial Sector Assessment Program (FSAP) has said.

The FSAP, a joint effort by the International Monetary Fund (IMF) and the World Bank, is formed to conduct a comprehensive analysis of a country's financial sector.

A detailed assessment on Sebi on the level of implementation of the International Organisation of Securities Commissions (IOSCO) principles was conducted between June 15 and July 1, 2011 as part of the FSAP.

'There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake,' says the FSAP report.

Currently, all Sebi-registered intermediaries have to meet a minimum networth requirement, however, there is no additional requirements to adjust capital by risk.

The IMF study has suggested that Sebi should enchance the networth requirement for intermediaries and also put in place a robust structure for reporting of capital adequacy for intermediaries.

'Sebi could consider quarterly reporting of financial statements, along with a monthly reporting of capital adequacy (or at least the latter), with an obligation from the intermediary to immediately notify SEBI if the actual capital falls below a certain threshold,' it says.

The report states that Sebi's effectiveness is impacted by three main challenges that include supervision approach towards intermediaries like fund managers and fund administer; mechanisms for compliance of issuers and mechanisms to ensure compliance with accounting and auditing requirements.

The FSAP report also states that Sebi should review the degree to which it will want to reply on stock exchanges 'for self-regulation, in particular. if they become themselves listed companies.'

It has also stated that both Sebi and MCA should consider whether reviews of information submitted by listed companies are carried out by Sebi only.

Also, whether the government-created Quality Review Board (QRB) meets all the requirements set forth in the IOSCO Principles for independent oversight of auditors’, or whether a different body under the oversight of the securities regulator is necessary.
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