SEBI to set up forensic cell to help investigate financial fraud

The market regulator intends to seek help of professionals, use latest tech tools and put in place an investigation laboratory to innovate investigative methods 

New Delhi: With an aim to catch fraudsters early, the Securities and Exchange Board of India (SEBI) plans to set up a forensic accounting cell to help it identify bungling in financial records and regulatory filings of listed firms and market entities.

At the same time, the market watchdog would also seek help from professionals, use the latest technology software tools and put in place its 'investigation laboratory' to churn out new investigative methods, PTI reports.

The proposed measures are part of SEBI's attempts to keep ahead of corporate and accounting fraudsters and market manipulators, who are using newer methods and technologies for manipulation in the market, a senior SEBI official said.

Having the forensic accounting cell would help SEBI avoid recurrence of Satyam-like scams, where irregularities in the company's accounts went unnoticed for many years, the official explained.

Surveillance of markets is going to be a key area of focus for SEBI in the current financial year and a proposal was made to increase the effectiveness of its surveillance mechanism. This was discussed at the regulator's last board meeting.

SEBI has also decided to use latest technology software tools, utilise the services of professional firms to set up an Investigation Laboratory, which will be used as an incubation room for innovation in investigative methods.

The regulator had in February implemented a new tool for speedy analysis of data and identification of possible violations like insider trading. The new tool, called 'Data Ware Housing and Business Intelligence System', would significantly enhance SEBI's investigation and surveillance functions and "generate reports that will better serve SEBI to identify, detect and investigate aberrations and market abuses that undermine market integrity."

The tool would help it monitor trade and order data it has received, to identify networked clients who possibly collectively indulge in violations of securities laws. It will have software functions aimed at addressing "crimes like insider trading, front running, etc."

SEBI is also working to put in place a unified regulatory filing system for all listed companies and market entities in a standardised format.


Private equity firms and broken-down model of broking firms–III

What is a business model without a widening customer base? Amazingly, PE funds missed that core point. Even as brokers threw PE money at branch expansion, retail investors stand alienated from the big bull market

India's consumption is booming. The Indian stock market is booming. There will be millions joining the market for stocks, mutual funds and other risk products, right? Well, the D Swarup Committee report on Investor Awareness and Protection put the number of retail investor population at just 8 million in 2009. And that figure has not risen over the years. The figure counted by the National Council for Applied Economic Research in 1999 for the Securities and Exchange Board of India was 12 million. There has been a decline in investor population, according to official studies, in a decade, which by all accounts was the best decade in living memory.

Retail investors are not coming to the market-or even to mutual funds. This is a fundamental problem with the way the investment market is functioning, something that the private equity players missed. Increasing the number of branches with PE money was easy. Getting customers was much harder. Baffled brokers are now cutting down branches.

This is a huge irony. After all, the stockbroking business should be thriving. The Sensex was at 1,000 in 1990 and is close to 20,000 today-a 20-time rally in 20 years. There are not too many markets in the world that have done so well over 20 years. And who would gain more from the great stock boom other than stockbrokers and mutual fund companies?

However, over 20 years, financial reforms, a scorching economic growth and massive market rally later, here are some shocking facts. A reply by Union minister of state for finance, Namo Narain Meena, in response to a question in Parliament, showed that the Indian capital market is narrow, shallow, illiquid and concentrated in the hands of a few individuals located at a few centres. (Read, Different Strokes: Where are the investors?  ).

Here is another piece of shocking data, this time from the Reserve Bank of India (RBI). The proportion of shares, debentures and investment in Unit Trust of India in household savings was 14% in 1990. In 2007-08 it was down to 13%, despite the fact that the market valuation has gone up 20 times during this period. Where are investors putting their money? Bank fixed deposits occupied 32% share of the household savings. It is now 50%. Savers are happy to put their money into banks.

Why is this happening? Surely, we are not short of products. There are over 3,000 actively traded stocks, 230 diversified equity mutual funds, over 100 life insurance products, the New Pension System, portfolio management schemes and other financial products. We are not short of ways to reach investors either. There are over 600 brokers, 1,000 financial planners, over 20,000 active financial advisors, over 3 million insurance agents, 25-30 banks and their "relationship managers", many websites for comparison and purchase online. Then there is the media-dozens of print publications, 4-6 TV channels regularly talking about financial products.

So, when the smart investors in 2007 believed that they have spotted a big virgin market -retail distribution of financial products-they were very confident. After all, rising prosperity naturally swelled the household surplus, which savers had to put somewhere. And it was an easy assumption that a branch and a few relationship managers are all one needed to vacuum the savings into the coffers of financial firms and of course, the pockets of intermediaries.

It could have worked out that way, except that financial products are not like consumer products. Unlike consumer products, they are not standardised. And therefore, the way they are sold is as important as what is being sold. This is also why financial products are regulated tightly all over the world. The expansion of 2007 would have indeed worked out well if only the producers and intermediaries behaved themselves and the regulator did its job.

Well, the reason retail investors have run away from the market is because of poor performance of financial products and horrendous mis-selling by financial intermediaries, even as the regulators tweaked some rules here and there without ever coming down heavily in favour of investors. We will examine that aspect in our next and final part of this series.

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6 years ago

i u have knowledge about the stock market u should not work in this shorts of origination like Mony Life , plz improve your knowledge,

j balaji

6 years ago

investors wants the capital guarantee with interest. They are finding markets very risky. The only solution is instead of promoting equity funds via mutual funds first promote debt funds an alternative to savings account. Step by step introduce to equity funds via sip this approach will work well.


6 years ago

Exhaustive analysis and very insightful.
Has been waiting (after each one) for the next one to get published.

It would be helpful, if you can provide a road map on way the forward for the industry.

The industry need to grow along with the investors and not at the expense of investors.

If the industry has to blame someone, it is itself, because purely focusing on instant gratification, without any long term orientation, is a recipe for disaster – both for investors and industry.


6 years ago

Wish you had posted the entire series as one article...

Inflation may ease to 6% this fiscal: PMEAC

Wholesale price index based inflation in March rose to 8.98%, higher than the Reserve Bank of India's projection

New Delhi: The prime minister's economic panel on Monday said that average inflation this fiscal may ease to 6% from about 9% at present, reports PTI.

"I think it (inflation) will be around 6%...

probably that is where it will settle down," Prime Minister's Economic Advisory Council (PMEAC) chairman C Rangarajan said on the sidelines a CUTS event here.

Wholesale price index (WPI) based inflation in March rose to 8.98%, higher than the Reserve Bank of India's projection.

"I think the inflation will come down in April. What happened in March was quite unexpected... but the food price inflation is coming down. The wheat production is very good.

Therefore, I expect the food prices to come down further in April and that should help in the overall headline inflation coming down," Mr Rangarajan said.

On the impact of rising crude oil prices on inflation, he said, that has been shielded so far as retail prices have not been adjusted to international crude prices, particularly with respect to diesel.

"But for some more time, probably we might be able to shield the diesel prices from external influences. About 3-4 months from now when inflation rate falls to a much lower level, perhaps we will have to take a decision on what to do with the diesel prices," Mr Rangarajan said.

When asked if the Greece debt crisis could hit foreign capital flows into India, he said, that may not have a direct bearing on the inflows.

"Total quantum of funds flowing into the emerging market may come down a little bit but as far as India is concerned what will decide it (inflow) will be the perspective on India's growth and India's strength and I do not think it will be seriously affected," he said.


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