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Mumbai: The government is set to have a greater say in the finances of the Securities and Exchange Board of India (Sebi).
The Union budget last week proposed that the government approve Sebi's annual expenditure plan.
Further, new provisions were introduced mandating transfer of 75 per cent of Sebi's surplus funds to the government.
The market regulator had over Rs 3,000 crore of surplus reserves as on March 31, 2018.
Legal experts said the move is unlikely to have any significant impact on Sebi’s finances.
But some think such moves could impact the autonomy of the capital market regulator.
Until now, Sebi’s expenditure plans only needed its board approval.
Now, it will also need the approval of the ministry of finance.
“This may affect the autonomous nature of Sebi as it provides more control to the central government,” said Sumit Agrawal, founder, Regstreet Law Advisors.
“Rather than seeking elaborate manner of public disclosures of Sebi's financials by amending Sebi (Form of Annual Statement of Accounts) Rules, 1994, the Finance Bill directly forms a ridge on expenditure discretion of Sebi.”
The market regulator maintains a general fund to which all the income received by Sebi is credited.
The regulator uses the fund for salaries and employee benefits.
Now, the government has asked Sebi to create a reserve fund.
The total corpus received into the general fund will be divided into two parts: 75 per cent will be transferred to the government while the rest will be credited to the reserve fund, which can be used for Sebi's expenses.
More importantly, there is a cap on how much Sebi can hold in its reserve fund — which is two times its annual expenditure.
In the past few years, there have been differences between the central government and the market regulator over financial autonomy.
In 2016, Sebi told the Comptroller and Auditor General (CAG) that any insistence on keeping Sebi funds in the government account would undermine its autonomy.
“(It) would militate against the basic canons of governance of markets by statutory regulators as envisaged under the Sebi Act.” Then, the CAG concluded that there were no provisions in the Sebi Act that obliges Sebi to share its revenues with the central government.
Yogesh Chande, partner, Shardul Amarchand Mangaldas, said, “Since there were concerns raised in the past around transferring such an amount in the absence of any specific provisions in the Sebi Act, the same is now being amended to expressly provide (for the purpose).”
Such provisions are being applied to Sebi alone.
Other regulators including the insurance regulator and pension fund regulator do not face such a scrutiny.
The move is part of the government’s strategy to raise more funds from state-owned institutions and regulators including the Reserve Bank of India (RBI).
According to the FY20 budget, the government aims to mop up Rs 1.06 lakh crore from these institutions against Rs 74,100 crore collected last fiscal.
“The development should be seen from the point of view that Sebi General Fund currently has a corpus of about Rs 3,000 crore,” said Anil Choudhary, partner, Finsec Law Advisors.
“This is a quite a large amount which remains unutilised by the market regulator and can be better served at the disposal of the government.”
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