Financial Clarity: Revamping India's Securities Regulation

The Parliamentary Standing Committee on Finance advocates for a clear division of regulatory roles between SEBI and RBI under the proposed Securities Markets Code, 2025. It emphasizes activity-based regulation, offering amendments and urging strong investor protection and regulatory transparency to enhance India's securities market framework.

The Parliamentary Standing Committee on Finance has called for a distinct allocation of regulatory duties between the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI). The discussion centers on the forthcoming Securities Markets Code, 2025, aiming to define the specific oversight of each regulator and avoid any regulatory overlap.

In a report presented to Parliament, the committee asserted that regulatory boundaries should primarily rely on the nature of the financial activity, rather than which entity is performing it. The committee proposed that clear demarcation of SEBI and RBI jurisdictions would prevent overlap, close regulatory gaps, and offer greater certainty for market participants.

Further, the committee suggested an activity-focused regulatory method, recommending legislative amendments to distinctly define responsibilities, ensuring securities activities remain within SEBI's purview even if conducted by entities overseen by the RBI. This approach, they argue, would bolster legislative clarity and reduce jurisdictional confusion.

The committee also recommended that the Securities Markets Code's preamble should clearly articulate objectives such as investor protection and market transparency. Additionally, including Clearing Members and Foreign Portfolio Investors (FPIs) within the definition of "intermediary" was suggested to prevent legal conflicts.

Other proposals included endowing SEBI with extensive regulatory powers, enhancing transparency in rule-making, and establishing a dynamic appointment process for SEBI leadership. A critical recommendation highlighted the need for a comprehensive legal framework for Virtual Digital Assets.

Overall, while supporting the Securities Markets Code, the committee made numerous recommendations to refine regulatory clarity, fortify investor safeguards, and bolster the functionality of India's financial market structure.