Govt mulling stronger laws to block Ponzi schemes

Written by ENS Economic Bureau | New Delhi | Updated: May 2 2013, 14:04pm hrs
UK SinhaSebi chief UK Sinha calls for a single regulator for collective investment schemes. (Reuters)
Market regulator Securities and Exchange Board of India (Sebi) will soon have wider powers to arrest illegal money raising activities as the government is convinced this is necessary.

Till it happens, Sebi chief UK Sinha said they were working extremely hard to ensure that savings of small investors are not put to risk.

In the backdrop of the national furore over the role of pyramid schemes that have repeatedly surfaced in various states to swindle lakhs of investors, the latest being in West Bengal, Sinha said there should be one regulator for monitoring collective investment schemes. The Indian

Express had reported on April 27 that the government was mulling an ordinance to expand the powers of Sebi.

His comments came on the sidelines of a seminar of Asia Pacific Region Committee of IOSCO, a global body of securities regulators in the city.

He said Sebi operates within tight limitations in its policing role. The two high profile cases that are being tracked by it are the Saradha group of companies and Sahara group. Declining to comment on specific cases, Sinha said, I will, however, like to assure you all that we are alive to the task given to us within our mandate. The Sebi Act while defining the type of collective investment schemes excludes a host of companies from its purview including chit funds, nidhis, non-banking financial companies, insurance and cooperatives. Sebi has asked the government to bring some of them under its regulatory purview.

Sinha said the best model to handle the mischief that was possible in unregulated investment schemes is to bring them under a single regulator.

With the type of instances that have come to our notice there is a case for strengthening (laws). Our position is that ideally there should be one single regulator for the entire range of collective investment scheme such as nidhi funds or chit funds. He claimed this (single) regulator will have a very serious task at hand given the extent of the frauds.

Some of these issues figured at the three day meeting of the regulators too. The specific issues they considered were the steps required to protect investors from mis-selling of products in capital markets.

Later speaking about the measures Sebi would have preferred, he said they have forwarded amendments to sections of the Sebi Act. For example, whenever we impose penalties, we find it extremely difficult to collect them because the collection mechanism under Act is vastly different and inferior from the mechanism provided under the Income Tax Act or the Competition Commission Act, he remarked.

Working on ways to tackle regulatory arbitrage, says market regulator

New Delhi: Terming regulatory arbitrage as an emerging grey area, Securities and Exchange Board of India (Sebi) chairman UK Sinha on Wednesday said such inconsistencies need to be addressed for effective implementation of financial market regulations. Entities operating across jurisdictions of numerous regulators, within and outside the country, are trying to exploit a scenario that has emerged off late and can be called regulatory arbitrage, he said.