Mumbai, Sept. 2: A review of India’s securities regulatory system by the International Monetary Fund (IMF) has a suggestion which, if accepted, may drive a wedge between the securities watchdog in India and the Institute of Chartered Accountants of India (ICAI).
Recently, the Indian government had formed a quality review board (QRB) to vet the quality of the work of auditors.
The IMF report says the government must now decide whether the QRB will be able to meet the global principles for independent oversight of auditors or whether a different body should be formed under the oversight of the securities regulator — the Securities and Exchange Board of India (Sebi).
The report also asked the authorities to look into the prospect of whether all functions related to listed companies should be vested with Sebi.
Reacting to these observations, Sebi said that the Companies Act, 2013 contains provisions for establishment of an independent quasi-judicial agency, the National Financial Reporting Authority, to oversee the functions of auditors and to ensure scrutiny and compliance with accounting and auditing standards. Further, it has set up a Qualified Audit Report Review Committee on which the ICAI, bourses and others are represented,
Sebi has also set up a forensic accounting cell in February last year to improve the quality of financial information disclosed and to assist in detection of financial irregularities.
Calling for criminal enforcement needs to be stepped up, the report said the authorities should look into the possibility of whether a similar arrangement that extends to collective investment schemes (CIS) should be extended to other types of securities offences.
Reacting to this observation, Sebi said that breaches to the Sebi act, the depository act and the securities contract regulation act including rules and regulations made under those acts also constitute a crime, punishable with imprisonment of up to 10 years or with a fine of up to Rs 25 crore.
Further, the failure to pay a penalty imposed by the adjudicating officer or to comply with any of his directions or orders also constitutes a crime, punishable with imprisonment of up to 10 years to a fine of up to Rs 25 crore.
Moreover, the market regulator can file a criminal complaint for violations to the statutes it administers that include the Sebi Act, depositories act and the SCR Act.
Sebi is also empowered to initiate criminal action in respect of offences under the companies act relating to the provisions administered by it under Section 621 of the act.
“Overall market participants believe that Sebi has been active in filing criminal cases and has provided information that supports such assertion. Convictions have taken place. During the last year, however, such cases have mostly focused on frauds related to CIS, as Sebi was able to secure dedicated tribunals to deal with such cases,” the report added.