Issues Associated with Regulatory Fees

Source-This post on Regulatory Fees and Financial Autonomy has been created based on the article “Regulatory fee or unjust enrichment?” published in “Business Standards” on 17 May 2024.

UPSC Syllabus-GS Paper-2– Statutory, Regulatory and various Quasi-judicial Bodies.

Context-The article discusses the issue of regulatory fees charged by the Securities and Exchange Board of India (SEBI) from entities like the Bombay Stock Exchange (BSE).

SEBI has asked BSE to pay regulatory fees retrospectively from FY 2006-07, based on the “notional value” of options contracts, amounting to around Rs. 70 crores with 15% interest.

What is the importance of financial autonomy for regulatory bodies?

1) Regulators need to be distanced from political influences and government control.

2) Financial autonomy through the power to charge fees ensures independence and credibility with stakeholders.

3) It establishes a predictable rule-of-law environment for private investors.

What are the main issues concerning the fees charged by regulators like SEBI?

1) Lack of Checks and Balances-In India, regulators have the power to impose fees without commensurate checks and balances, leading to self-aggrandizing behavior.

Read more- Changes made by India’s Securities and Exchange Board (SEBI) for NRIs and OCIs

2) Financial Accumulation and Spending Trends– There is a propensity to levy high fees, support expansive expenditure programs, and amass pools of assets.
For ex-SEBI has a large income surplus. By the end of the financial year 2022-23, it had a closing balance of Rs. 4,508 crores.

3) Legislative Action on Surplus Funds– The parliament passed an amendment to the Sebi Act through the Finance Act, 2019 that was aimed to transfer surplus funds from SEBI to Consolidated Fund of India. However, despite parliamentary approval, this amendment has not been notified.

What steps can be taken to address these issues?

1) Alignment of Fees with Services Rendered– Regulatory bodies should charge fees based on the services they offer. This means the fees should match the costs the regulator faces in overseeing particular entities.

2) Prudent Budgeting-There is a need to exercise more caution in determining the budget of regulatory bodies to prevent overspending. A tighter budget would make organizations like Sebi choose their regulatory and supervisory projects more carefully.

3) Role of the Board-The board should protect the interests of stakeholders against the self-interest of internal staff. It should enforce constitutional principles, block excessive fees, oversee budget processes, and ensure accountability of management.

4) Consolidation of Financial Oversight- A single parliamentary law should set the correct framework for all financial agencies, as recommended by the Financial Sector Legislative Reforms Commission. This approach will address financial impropriety and manage accumulated reserves across various regulators effectively.

Question for practice

What are the primary concerns regarding the fees imposed by regulators such as Sebi? What measures can be implemented to tackle these concerns?