Use existing powers before seeking more

This newspaper recently reported that the Securities and Exchange Board of India (Sebi) had asked for powers to tap telephones and the attempt had been rebuffed by the government. The attempt appears to be yet another effort by yet another regulator to expand its statutory powers, without fully putting to use the exhaustive powers already vested in it. 

Every time a crime is discovered, Indian law enforcers seek and are granted enhanced powers. It is an unchallenged postulate in India that the primary hurdle to combating crime is the absence of laws, rather than the absence of state capacity to put to use the wide-ranging and elaborate powers already obtained and hoarded over successive crimes. When a brutal sexual assault takes place, we write laws that heighten the criminal sanction to capital punishment, simply assuming that fear of death will deter repeat offences, and not thinking about whether it would lead to a higher chance of the victim also being murdered, erasing the prospect of living to tell the tale. The policy approach with economic laws is no different.

Sebi is one of the world’s most powerful securities regulators. To begin with, under the unique Indian regulatory design, Indian regulators are mini-States, with legislative, executive and judicial powers, all rolled into one body corporate. Governed with a light-touch by a board of directors — whose conduct of business is not regulated with the stringency applicable to corporate governance — regulatory incumbents do not have stipulated performance appraisal norms, or fixation of key responsibilities, and an institutional system of incentives and disincentives to nudge performance. However, even that can be put aside as a matter of larger institutional design.

Seeking ever-increasing powers is an integral feature of regulatory agencies. It is true that the maximum monetary penalty Sebi could impose in the 1990s was Rs 5 lakh, but that is completely a thing of a distant past.  Punishments can now range to  Rs 25 crore, or three times the amount involved in the violation, a 10-year imprisonment (every single breach of the law is a criminal offence) and of course, the omnibus “power to issue directions in the interests of the market”. Even consideration of the scale of punishment can be put aside as the final outcome, but some contemplation on the powers available to investigate and assess the occurrence of a violation would be sobering.

It is strange that the power to tap telephone lines was sought, when the power to get hold of and analyse call data records has been available for years now, but has simply been hoarded, or depending on how you look at it, mothballed. When a regulator has the power to get hold of call data records, and any person whose cooperation is sought is legally bound to assist, Sebi has to simply get hold of how many times one suspect called another over a prolonged period of time, and consider the intensity of the telecommunication between the two closer to the date of the offence.  This would be a powerful circumstance to prove an offence.

Yet, orders of Sebi hardly analyse call data records even when suspected insider trading has taken place. Sebi prefers to keep the bar even lower to show some remote connection (relationship between cousins or even “friends” on social media) to hint at trading being motivated by insider tips.  Going that extra mile to make a case fool-proof brings with it the risk of discovering that the suspected offence was no offence at all. Regulators (indeed, like defence lawyers) tend to be careful about what they seek — facts can indeed get in the way of a good story.

Without using this existing power, seeking a power to tap telephonic conversations is an attempt at a deeper occupation of the regulatory enforcement turf. Interestingly, the Competition Commission of India has made attempts to put call data records to good use — inexplicable rise in communications between competing parties involved in a bidding process has been pressed into service to point to bid rigging. The possibilities for using them in the capital market are immense. There was a time when Sebi took pains to show that the mobile phones of multiple persons were serviced from the same transmission tower, to add a circumstance in the evidence that would point to a preponderance of their having met and acted in a concerted manner.  The approach found favour with courts. 

It is time the governance of regulatory boards built capacity to review if the exhaustive powers available to them are actually being put to use, before jumping to the chorus of demanding even more powers. Hoarding up an ever-growing inventory of powers heightens the risk of the power being abused.

The writer is an advocate and independent counsel