Covid hits info sharing between securities regulators

Though stock markets across many countries have touched or are near their all-time highs, the pandemic appears to have taken a toll on enforcement coordination between securities markets regulators.

This is seen in the drop in information requests that the Securities and Exchange Board of India (Sebi) made to foreign regulators in financial year 2020-21 (FY21), and the decline in incoming requests from foreign regulators, which fell to their lowest since FY13.

Regulators seek assistance from their counterparts in foreign jurisdictions through such requests to help with investigation and enforcement. These requests are made through a memorandum of understanding (MOU) between regulators. There is also a multilateral MOU (MMOU) between members of the global regulatory association, the International Organization of Securities Commissions (IOSCO).

“During 2020-21, a total of 51 requests were received from the overseas regulators seeking Sebi’s assistance. Sebi responded to such requests subject to the provisions of the applicable MOU/ MMOU. Similarly, 24 requests were made by Sebi to its regulatory counterparts in other jurisdictions. Further, Sebi received information through six unsolicited references from three securities market regulators who are members of the IOSCO,” said a note in the annual report released in August.

Moin Ladha, partner at law firm Khaitan and Co, said requests can cover such things as beneficial ownership of companies situated in foreign jurisdictions. There may have been a decline on account of Covid-19 in the number of such instances, according to him. “The pandemic has played...(a) role,” he said.

This has come at a time when the pace of regulatory enforcement has quickened, said Ladha, as technology assists the regulator in surveillance and other activities.

Sandeep Parekh, founder of Finsec Law Advisors and former executive director of Sebi, agreed that a decline in requests to foreign regulators could be causally related to the pandemic.

Cycles

Market cycles can also play a role, he said. Illegal activity also happens during the kind of bull market that has been recently seen, according to him, though complaints tend to only follow when the cycle reverses. “Fraud comes to light when the markets go down,” he said.

Foreign regulators have made 617 requests since FY12, shows Sebi data. The highest number of such requests was 94 in FY14, and foreign regulators made an average of over 60 requests a year over the last 10 years.

Outgoing requests to foreign regulators totaled 190 in the last decade, an average of around 19 requests a year. The lowest number of requests was nine in FY19. The same number was seen in FY12 and FY13. The highest was 44 in FY16. This year’s drop comes even as regulatory assistance between securities regulators went up globally in 2020. They rose eight per cent during the year, shows IOSCO data.

Sept 11 legacy

Cooperation between international securities regulators came about after the terror attacks on September 11, 2001, in the USA. The MMOU, which came into being in 2002, sets a framework for the nature of the information that can be shared, the legal capacity to compel and share this, and its permissible use. India signed on to the framework in April 2003.