First, the regulator’s moves caused dwindling market participation. Now, its plan to outsource complaints will further alienate it from investors
In one of the first decisions under UK Sinha’s tenure as chairman, the Securities and Exchange Board of India (SEBI) has reportedly decided to outsource its investor helpline service to a 500-seater third-party call centre.
This will be in addition to handing over the processing and maintenance of investor grievances to an outside agency. Is this a sign of improved efficiency or abdication of responsibility?
The preamble to the SEBI Act reads: “An Act to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto.”
Clearly, investor protection is the first objective and market development and regulation functions arise from the first objective. How does the regulator protect investors if the job of interacting and engaging investors, hearing their issues, detecting patterns in investor complaints or a systemic issue is outsourced to call centres?
Ironically, the same media report says that SEBI does not want market intermediaries to outsource their core investor-sensitive functions.
Over the past two decades, SEBI’s biggest failure has been its insensitivity to investors’ issues. It has not kept its ears close to the ground. Rather it has always framed policies in consultation with market players—investment bankers, large companies and their lawyers or accountants, overlaid by the wisdom of government officials.
This attitude follows a pattern: SEBI frames rules that cause hardship or losses to investors for several years; it acts only when the number of complaints is large enough or leads to litigation; often, this kneejerk action is extreme and causes further harm to investors.
Consider just three examples that Moneylife has focused on for six years: transmission of shares, power of attorney and the commission paid to distributors. In each case, SEBI acted long after the issue was brought to the attention of various SEBI chairmen. But SEBI’s action was too late to correct the systemic damage and erosion of investor confidence.
Moneylife has repeatedly pointed out that India’s investor population has declined from 20 million in 1992 (according to official reports) to just eight million (equity and mutual funds) according to the D Swarup Committee report 2009. This data never fails to startle policymakers, because we are fooled by the 20x increase in the Sensex, speculative trading turnover of over Rs1,00,000 crore a day, the 24x7 media coverage on stock markets and the increase in initial public offerings (IPOs), mutual fund schemes, etc. When confronted with the data, some seek a break-up; others want to know where investors are putting their money.
In fact, the details are available in official numbers. Bank deposits have increased from 32% of total household savings (RBI data) to 51% in 2007-08 (at the peak of the bull run). In contrast, investment in shares/debentures and units of Unit Trust of India has declined from 14% to 13% in the same period—despite the 20x rise in the Sensex and scores of mutual funds and public issues making their debut. The market has risen only on the back of foreign investment.
Indian investors have been steadily fleeing the market, despite the apparent spread of ‘equity cult’ and the government hasn’t even noticed. This will only get worse if SEBI decides to outsource its core function of listening to investor issues and resolving them.
Before SEBI hands out any outsourcing contracts, it must have a public discussion on the process of collating daily/weekly and monthly reports from these agencies.
These cannot be mechanical feedback about complaints and their redressal. The reports must flag all issues which have more than 10 complaints on the same subject or the same company/market intermediary. The reports must be made public and also placed before the SEBI board with an action plan followed up with an action-taken report.
The question is will the SEBI board, the finance ministry and the standing committee of Parliament on finance listen? It is interesting to contrast this with how the Reserve Bank of India (RBI) had drastically cut investor complaints during Dr YV Reddy’s tenure. He increased the number of banking ombudsmen; expanded the scope of issues they would handle; told banks that repeated complaints on the same issue would be treated as a class-action. His masterstroke was that he appointed serving RBI general managers to be ombudsmen. This ensures that a big swathe of RBI’s senior officials is personally sensitised to customer issues as well as banks’ perspective and that RBI has a better record of handling customer complaints than other financial regulators.
Source : MoneyLife
In one of the first decisions under UK Sinha’s tenure as chairman, the Securities and Exchange Board of India (SEBI) has reportedly decided to outsource its investor helpline service to a 500-seater third-party call centre.
This will be in addition to handing over the processing and maintenance of investor grievances to an outside agency. Is this a sign of improved efficiency or abdication of responsibility?
The preamble to the SEBI Act reads: “An Act to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto.”
Clearly, investor protection is the first objective and market development and regulation functions arise from the first objective. How does the regulator protect investors if the job of interacting and engaging investors, hearing their issues, detecting patterns in investor complaints or a systemic issue is outsourced to call centres?
Ironically, the same media report says that SEBI does not want market intermediaries to outsource their core investor-sensitive functions.
Over the past two decades, SEBI’s biggest failure has been its insensitivity to investors’ issues. It has not kept its ears close to the ground. Rather it has always framed policies in consultation with market players—investment bankers, large companies and their lawyers or accountants, overlaid by the wisdom of government officials.
This attitude follows a pattern: SEBI frames rules that cause hardship or losses to investors for several years; it acts only when the number of complaints is large enough or leads to litigation; often, this kneejerk action is extreme and causes further harm to investors.
Consider just three examples that Moneylife has focused on for six years: transmission of shares, power of attorney and the commission paid to distributors. In each case, SEBI acted long after the issue was brought to the attention of various SEBI chairmen. But SEBI’s action was too late to correct the systemic damage and erosion of investor confidence.
Moneylife has repeatedly pointed out that India’s investor population has declined from 20 million in 1992 (according to official reports) to just eight million (equity and mutual funds) according to the D Swarup Committee report 2009. This data never fails to startle policymakers, because we are fooled by the 20x increase in the Sensex, speculative trading turnover of over Rs1,00,000 crore a day, the 24x7 media coverage on stock markets and the increase in initial public offerings (IPOs), mutual fund schemes, etc. When confronted with the data, some seek a break-up; others want to know where investors are putting their money.
In fact, the details are available in official numbers. Bank deposits have increased from 32% of total household savings (RBI data) to 51% in 2007-08 (at the peak of the bull run). In contrast, investment in shares/debentures and units of Unit Trust of India has declined from 14% to 13% in the same period—despite the 20x rise in the Sensex and scores of mutual funds and public issues making their debut. The market has risen only on the back of foreign investment.
Indian investors have been steadily fleeing the market, despite the apparent spread of ‘equity cult’ and the government hasn’t even noticed. This will only get worse if SEBI decides to outsource its core function of listening to investor issues and resolving them.
Before SEBI hands out any outsourcing contracts, it must have a public discussion on the process of collating daily/weekly and monthly reports from these agencies.
These cannot be mechanical feedback about complaints and their redressal. The reports must flag all issues which have more than 10 complaints on the same subject or the same company/market intermediary. The reports must be made public and also placed before the SEBI board with an action plan followed up with an action-taken report.
The question is will the SEBI board, the finance ministry and the standing committee of Parliament on finance listen? It is interesting to contrast this with how the Reserve Bank of India (RBI) had drastically cut investor complaints during Dr YV Reddy’s tenure. He increased the number of banking ombudsmen; expanded the scope of issues they would handle; told banks that repeated complaints on the same issue would be treated as a class-action. His masterstroke was that he appointed serving RBI general managers to be ombudsmen. This ensures that a big swathe of RBI’s senior officials is personally sensitised to customer issues as well as banks’ perspective and that RBI has a better record of handling customer complaints than other financial regulators.
Source : MoneyLife
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