Regulatory Impact Assessment: Why SEBI Rules Need It
Why in the news
Commentators have urged that every new SEBI rule be tested for need, proportionality and economic effect before it is issued.
Key facts
- Density of rules: over 44 principal regulations, 13 statutory rules and 2,700-plus circulars.
- Cost of churn: frequent changes raise entry barriers and cause regulatory inertia.
- Gap: the draft Securities Markets Code, meant to consolidate laws, is said to skip mandatory RIA.
- Demand: institutionalise RIA so new rules face tests of necessity, proportionality and consequences.
| Step | Test | Question asked |
|---|---|---|
| 1 | Clarity | Is the problem lasting (systemic) or one-off (episodic)? |
| 2 | Alternatives | Would stronger enforcement or market incentives do the job instead? |
| 3 | Cost-benefit | Do transparency gains justify technology, staff and liquidity costs? |
| 4 | Consequences | Could activity shift to grey areas, or big firms gain a monopoly? |
| 5 | Post-implementation review | Did the rule work, or should it be dropped? |
Background concepts
- RIA: a structured way to weigh positive and negative effects of proposed and existing rules, plus non-regulatory options.
- Ex-ante assessment: evaluation done before a policy starts, to predict impact.
- Delegated legislation: rules framed by an executive body such as SEBI under powers given by an Act of Parliament.
- Information asymmetry: one side, such as an insider, knows more than the other, such as a retail investor; regulation tries to narrow this.
- Sunset clause: a provision that ends a rule automatically after a set period unless extended.
Exam angle
- Pending law: Securities Markets Code, to consolidate securities laws.
- Regulator in focus: SEBI.
- Related terms: ex-ante assessment, delegated legislation, sunset clause.