Regulators, like Caesar’s wife, must always be above suspicion

Also read: Sebi’s toxic work culture, allegations against Chairperson Madhabi Buch spark Parliamentary inquiry

In a fresh attack, the Indian National Congress has alleged that Agora Advisory, a consulting business she owns 99% of, earned fees from regulated entities under Sebi’s purview even after her appointment to the regulator’s chair. It has held this up as a pointer to a conflict of interest, even as the said entities denied that they had sought preferential treatment from the capital-markets regulator. Earlier, India’s principal opposition party had accused Buch of receiving ₹2.17 crore in rental income from another regulated entity, which was under investigation for insider trading.

According to a 10 August note from Hindenburg, Buch owned 100% of a Singapore-based consultancy Agora Partners from 2013 to 2022, a period that covered the time she was a full-time member of the Sebi Board, and transferred its ownership to her husband Dhaval Buch only on 16 March 2022, more than two weeks after taking charge as Sebi’s chairperson.

Buch denied the charges of impropriety made by Hindenburg, but is yet to respond to the Congress’s allegations. This episode, however, cannot be dismissed as just another storm in a teacup. Sure, she has said that the existence of these consulting companies and her shareholding in them were an explicit part of her disclosures to Sebi and that she has nothing to hide. While this may well be so, the reality is that when it comes to regulators, the line between the personal and the public is very thin. Like Caesar’s wife, regulators must always be above suspicion. Importantly, they must also be seen as above suspicion. And that, unfortunately, is where Buch fails the test.

Also read: Congress accuses Sebi’s Madhabi Buch of making crores from M&M, ICICI, Dr Reddy and 3 more listed companies via Agora

Sebi has also said it has adequate internal mechanisms to address conflicts of interest. Still, it does the Sebi chair no credit to remain at the helm while under a cloud. Suspicions over any unofficial role she may have played after she joined Sebi have come to expose the regulator’s reputation to risk. This is unfortunate. It has implications for how the Indian equity market is seen by investors globally, and given the market’s role in capital allocation, for the whole economy.

We need a complete probe of all allegations. Sebi’s competence is not in doubt, as the Supreme Court observed this January, but we must ensure that regulatory officials function without fear or favour, and that is best done if Buch steps aside till such time that her name is cleared.

More importantly, we must use this controversy as a trigger for larger reforms of the system to rule out potential conflicts of interest in the future. First, to strengthen safeguards meant to ensure those who helm financial regulators cannot earn from any job held or for-profit role elsewhere, their holdings should not only be made public, but also sealed off and held in blind trusts as long as they have public duties to fulfil. Second, we should revisit the current protocol of appointments being made solely by the executive. Instead, these decisions could be made by a bipartisan body, such as the Parliamentary Standing Committee on Finance, and/or require the approval of Parliament.

Also read: Hindenburg’s first reaction on Congress allegations on Sebi chief Madhabi Buch: ’Complete silence for weeks’