Market regulator Sebi to get access of internet, call records from overseas fraudsters

In a major boost to its powers, regulator Sebi may soon get access to internet and call data records of fraudsters and market manipulators in a foreign country and also seek freezing of their overseas assets.

Sebi already has powers to seek call data records, excluding the exact content of the communication, from telecom firms within India and these details have often helped the regulator act against defaulters in cases like market manipulation, fraudulent trades and insider trading.

The new powers to seek such details from abroad will help the regulator in cases involving entities and persons in foreign countries, as Sebi would be able to establish regular connections between them even without access to exact content, a senior official said.

Globally, regulators rely a lot on access to such technology-linked records and use the subscriber records and traffic data to prove passage of information.

The additional enforcement powers will be available to Sebi through the Enhanced Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (EMMoU), which has been approved by the IOSCO, the apex international body of market regulators.

The Securities and Exchange Board of India (Sebi) is a key member of IOSCO (International Organisation of Securities Commissions), which is recognised as the global standard setter for regulations in the securities markets worldwide.

To get the additional powers, Sebi and other regulators would need to migrate to the new EMMoU from the existing MMoU. The new mechanism will also enable regulators to obtain and share audit work papers, communications and other information relating to audit or financial account reviews.

Besides, they would be able to compel physical attendance for testimony (by being able to apply a sanction in the event of non-compliance), and also freeze assets if possible or, if not, advise and provide information on how to freeze assets at the request of another regulator. The sharing of internet and telephone records, excluding the exact content of communications, would also be possible with the assistance of a prosecutor, court or other authority.

Regarding the content of the communications, the regulators would have to contact the authorised entities. The enhanced standard for cross-border enforcement cooperation was approved by the IOSCO last Friday and offers the member regulators new enforcement powers for responding to the challenges arising from recent developments in global financial markets.

The IOSCO said the MMOU and the EMMoU provide a mechanism for securities regulators to share essential investigative material, such as beneficial ownership information, and securities and derivatives transaction records, including banking and brokerage records.

Both documents also set out specific requirements for the exchange of information, notably ensuring that no domestic banking secrecy laws or regulations prevent the sharing of enforcement information among securities regulators.

The MMoU, since its launch in 2002, has provided the regulators around the world with key tools to fight cross-border financial fraud and misconduct that can weaken global markets and undermine investor confidence.

For 15 years, regulators have used the MMoU to help ensure effective global cooperation and strengthen international securities markets. IOSCO said that the securities markets have undergone sweeping changes in recent years, driven by things such as new technologies and regulation, and the growing role of market-based finance.

"These forces have spurred IOSCO to develop an enhanced standard on cross-border enforcement information exchange that goes beyond the MMoU and responds to recent market developments," it added. Ashley Alder, CEO of the Hong Kong Securities and Futures Commission, and Chair of the IOSCO Board, said, "The adoption of the EMMoU represents a significant milestone for IOSCO because it enhances cross border enforcement cooperation among our members and builds upon the success of the current MMoU.

"With its expanded powers, the EMMoU will enable IOSCOmembers to meet the challenges of combating financial misconduct in an increasingly cyber/tech dominated environment." Paul Andrews, Secretary General of IOSCO, said: "TheEnhanced MMoU marks a turning point in cross-border enforcement cooperation and information sharing among IOSCO members.

It raises the standards of enforcement action, making it increasingly difficult for wrongdoers to conduct cross-border misconduct in global securities markets." The EMMoU also envisages the obtaining and sharing of existing communications records held by regulated firms.

The securities regulators are currently required to sign the MMoU to become a member of IOSCO. IOSCO said the MMoU will remain in effect as long as any signatories continue to wish to use it, while the objective is for all MMoU signatories to migrate eventually to the EMMoU.

Currently, 112 securities regulators are signatories to the MMoU. In 2015, the signatories made 3,203 requests for information, compared to only 56 requests in 2003.

IOSCO said it will undertake various initiatives to support the implementation of the EMMoU, including technical assistance programmes, political support and an ongoing communication strategy.