A committee set up by the Securities and Exchange Board of India (SEBI) has recommended giving the capital market watchdog direct powers to intercept phone calls for better investigation while strengthening the regulations to act against perpetrators of financial statements fraud.
“The committee has recommended that SEBI may seek direct power to intercept calls to aid in investigation, akin to the power granted to the Central Board of Direct Taxes. However, proper checks and balances must be ensured for use of the power,” stated the report by the Committee on Fair Market Conduct formed under the chairmanship of former law secretary T.K. Viswanathan.
Currently, the regulator has powers to seek call data records as part of its probes, but the committee is of the view that the regulator needs more powers to assist in its regulatory responsibilities. In what could mean giving SEBI more teeth to act against auditors and CAs, the panel has also recommended powers to take “direct action against perpetrators of financial fraud.”
The panel is in favour of including a new sub-section within the SEBI Act to prohibit schemes or artifices to manipulate the books of accounts and financial statements or to hide diversion, misutilisation or siphoning of public issue proceeds.
The panel has proposed broadening the ambit of manipulative and unfair trade practices, stating that listed firms should have policies to deal with leaks of unpublished price sensitive information.
“The committee has recommended that listed companies should initiate inquiries into any case of leak of UPSI or suspected leak of UPSI and inform SEBI promptly,” the report said.
“The listed company should have written policies and procedures for such inquiries, which are duly approved by board of directors of the company. Listed companies should also have whistle-blower policies that make it easy for employees to report instances of leak of UPSI,” it added.
Interestingly, the committee has also recommended that trading done by any entity in excess of verifiable financial sources should be deemed to be fraudulent, if such trading leads to any manipulation in the price or volume of the security.
This was in the context of front entities that sometimes only lend their names or trading accounts to entities who act as financiers of the transactions.
The committee with over 20 members was represented by industrialists, lawyers, consultants, stock exchanges, mutual funds and investment bankers.