As the regulator of India’s capital markets, the Securities and Exchange Board of India (“SEBI”) performs the role of a mini-state in that it exercises the powers of the legislature, executive, and judiciary, all vested in a single authority. Over the last three decades of its existence, SEBI has enacted regulations on nearly every single aspect of India’s capital markets. Its regulation-making process (and the consultation surrounding it) has only accelerated in recent years, with SEBI having released a whopping 165 consultation papers over two-year timeframe commencing 1 January 2023.
Despite the frenetic nature of SEBI’s legislative activity, concerns abound as to the process it has been following for issue and amendment of regulations. The legislation undergirding the regulator’s existence, i.e., the SEBI Act, 1992, does not prescribe any specific steps it ought to take while enacting regulations. Devoid of any statutory guidance, SEBI’s consultation process tended to lack uniformity. While it has been issuing detailed consultation papers (often after obtaining reports from expert committees on significant topics), there has been no transparent mechanism by which comments from stakeholders are incorporated into the decision-making process. This is primarily because SEBI has rarely, if ever, issued a response paper indicating how the comments received during the consultation process had been addressed before the regulations were crystallised.
This concern has been addressed, at least partially, by SEBI’s recent steps relating to regulation making. In its board meeting held on 18 December 2024, SEBI approved the SEBI (Procedure for making, amending and reviewing of Regulations), Regulations, 2025 (the “Procedure Regulations”), which were notified on 13 February 2025. While the Procedure Regulations are welcome as they formalise the procedure for the exercise of SEBI’s legislative powers, they do not go far enough as they not only lack sufficient detail, but they also omit the all-important aspect of regulatory impact assessment (“RIA”), which is a quintessential element of the process in leading jurisdictions with a regulatory state.
Impetus for Reform
For long, commentators have observed (here and here) that the consultation process carried out by India’s financial regulators, and SEBI in particular, were far from ideal, especially in comparison with other regulators overseeing sectors such as telecom and airports. There has also been considerable clamour of the introduction of RIAs in the regulation making process by financial regulators, whereby the regulator is urged to undertake a structured impact assessment process by which a cost-benefit analysis (both quantitative and qualitative) is undertaken before regulations are promulgated. The recommendations (at p. 30) of the Financial Sector Legislative Reforms Commission (“FSLRC”) are an illustration on point. The judiciary has followed suit in its own exhortation to regulators. In Cellular Operators Association of India v. Telecom Regulatory Authority of India, the Supreme Court of India set out the principles of transparency and openness in governance when regulatory bodies issue regulations and called upon Parliament to enact a legislation on the lines of the Administrative Procedure Act in the United States (“US”).
More recently, the Economic Survey 2024-25 delved into the need for fulfilment of five criteria in regulation making by financial regulators: “democratic legitimacy, accountability of the regulator, fair, accessible and open procedures, expertise and efficiency.” It also extols the virtue of RIA as a “systematic procedure … to ensure the quality of regulations …, thereby improving credibility.” It is against this backdrop that the utility of the Procedure Regulations ought to be assessed.
Analysing SEBI’s Procedure Regulations
The Public Consultation Process
The primary goal of the Procedure Regulations is to formalise SEBI’s consultation process. Proposals for changes in policy, along with draft regulations, and a statement of the regulatory intent and objectives, are to be published by SEBI on its website. A 21-day period is made available for submission of comments. There is arguably nothing novel in this approach since it merely codifies the practice SEBI has been following in recent years.
The new addition relates to the fact that SEBI must also publish the rationale for rejection, if any, of comments received in response to the consultation process. Thus far, it has been unclear how SEBI has incorporated comments into the final regulations before they are promulgated, as that process has been rather opaque. This is different from other securities market regulators that have displayed greater transparency in the process of addressing comments received in the consultation process. For instance, the US Securities Exchange Commission (“SEC”) tends to post all the comments received in their original form, while other regulators such as the Singapore Exchange (“SGX”) issue responses papersafter the conclusion of the consultation process which describe how the regulator has (collectively, and not necessarily individually) addressed the comments received.
Regulation Making During an Exigency
Another aspect of the Procedure Regulations is that SEBI has retained with itself the ability to bypass the consultation process where it “is of the opinion that it is expedient in the interest of the investor and the regulation and development of the securities market that the adherence to the public consultation process would defeat the purpose of the proposed regulation.” At one level, there can be some criticism that the approach confers too much discretion with SEBI’s chairperson or the board to avoid a consultation process, but the exercise of such powers is understandably only in exceptional circumstances. In any event, SEBI’s action would be subject to general principles of regulatory oversight.
Review of Regulations
Since the capital markets are rather dynamic in nature, the regulator ought to keep up to speed with developments. Although SEBI has been constantly reviewing its regulations, often that tends to be piecemeal in nature. Recognising the need for a more comprehensive approach to review of existing regulation, SEBI has a self-imposed mandate under regulation 8 of the Procedure Regulations to review regulations in force based on its own regulatory and surveillance experience, decisions of courts and tribunals as well as global best practices, among other factors. This could involve strengthening the regulations from time to time based on the discovery of possible loopholes, or even easing of SEBI’s regulatory grip if there is “scope for reducing redundancies and promoting ease of doing business”.
Conclusion
By enacting the Procedure Regulations, SEBI has formalised its legislative process. The regulations outline the nature of the consultation during regulation making, and also set out circumstances (such as exigent situations) where consultation is not necessary or prudent. At the same time, apart from clearly including a mandate to publish the rationale for rejection of comments made available during the consultation process, there is limited addition to the already established processes. A more robust step, one that has been recommended periodically by commentators, law reformers as well as the judiciary, would be to introduce an RIA process that would incorporate greater transparency and rigour to the regulation making process, but the current effort falls well short of that.
