Who will regulate the regulators?

Regulators set standards for others. What about the standards at the  Statutory Regulatory Authorities (SRAs) themselves? 

This is one issue that has come to the fore following the current controversy involving the Chairman of SEBI. What are the disclosure standards for the SEBI Chairman? How well are potential conflicts of interest handled? We had news today that SEBI refused to provide the Chairman's list of recusals in response to an RTI query- the news occasioned much outrage in the social media.

K P Krishnan, a former secretary in the finance ministry, has raised the issue of accountability of SRA such as RBI and SEBI in a recent article. 

The legislative actions of the SRAs are supposed to be subject to legislative scrutiny. The record on this point is disappointing:

Over a 23-year period, between 1999 and 2022, the Lok Sabha parliamentary committee reviewed 13 regulations issued by all SRAs, and the Rajya Sabha parliamentary committee reviewed four such regulations. Sebi alone has issued more than 650 regulations since it came into being. There are more than 20 SRAs at the level of the Union of India, and most of their legislative activity is not being subject to parliamentary scrutiny

There are limits to what parliament can scrutinise. Much responsibility must devolve on the boards of directors of these institutions. Here again, the record is pathetic:

The composition and functioning of the governing boards of all SRAs in India leave much to be desired. They are almost entirely composed of internal persons and serving government functionaries. In practice, the board delegates most of the powers to the chairperson and provides very little oversight. There is a striking gap between the governance standards that Sebi demands of listed companies or the Reserve Bank of India (RBI) demands of banks and  how Sebi and  the RBI themselves are governed.

Krishnan makes two excellent suggestions. One, there must be a separate parliamentary committee to monitor SRAs. Two, the Comptroller and Auditor General (CAG) must undertake performance audits of the SRAs instead of confining itself to financial audits. 

These reforms are necessary. What is missing in SRAs today is democratic accountability, an imperative for any public institution.