India Employer Forum

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The Sheer Volume of Compliance Requirements Necessitate Tech Solutions to Ensure Adherence and Mitigate Risks

  • By: India Employer Forum
  • Date: 25 July 2024

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Divyatha Chelani, Chartered Accountant, Risk Management and Compliance speaks about regulatory challenges and technological advancements in the BFSI domain.

Q. What is the regulatory framework for the commodities market in India?

The Securities and Exchange Board of India (SEBI) has been regulating the commodity derivatives market in India since September 28, 2015. Before September 28, 2015, the erstwhile Forward Markets Commission (FMC) regulated the commodity derivatives market. SEBI comes under the administrative domain of the Ministry of Finance within the Government of India.

The present regulatory framework is governed by the Securities Contracts (Regulation) Act, 1956, and Securities Contracts (Regulation) Rules, 1957; the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporation) Regulations, 2018; and the Securities And Exchange Board of India Act, 1992, and Securities And Exchange Board of India (Stock-Brokers And Sub-Brokers) Regulations, 1992.

The Board has laid down eligibility requirements for stock exchanges which are required to frame their own rules and regulations. In addition, the Rules, Bye-laws & Regulations of the Derivative Segment of the Exchanges and their Clearing Corporations must be framed in line with the suggested circulars/guidelines, etc. issued by SEBI from time to time.

Q. What are the challenges/complexities affecting the industry?

Upgrading Technology and processes in line with regulatory changes is the most challenging aspect that affects capital markets in India. The regulatory environment for commodity markets in India is dynamic and frequently evolving. Securities and Exchange Board of India (SEBI) regularly introduces new regulations and guidelines to enhance market transparency, integrity, and efficiency in capital markets. Market participants, including exchanges, brokers, and traders, must continuously adapt to these changes.

To comply with new regulations and stay competitive, commodity market participants must invest in advanced technologies. This includes upgrading trading platforms, implementing robust surveillance and risk monitoring systems, and enhancing data analytics capabilities. Further, investing in digital solutions to manage compliance functions provides businesses with ease of compliance, reducing complexities around compliance management. The integration of emerging technologies like blockchain, artificial intelligence, and machine learning can further provide a competitive edge, but it also requires significant capital investment and expertise.

With the increasing reliance on technology, managing and securing vast amounts of data has become crucial. Regulatory requirements often mandate stringent data protection and privacy standards. Ensuring compliance with these standards involves implementing sophisticated cybersecurity measures, which can be complex and costly. Ensuring the staff are well-versed in the latest technologies and compliant with regulatory standards requires investments in education and training programs.

Q. Are there any specific areas that have a higher effect on the complexity of business operations? Such as labour regulations and industry-specific regulations?

Industry-specific regulations for capital markets include Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018, Securities Contracts (Regulation) Act, 1956, and circulars and guidelines issued by SEBI from time to time.

The Securities Contracts (Regulation) Act, 1956, and related regulations mandate rigorous reporting and disclosure requirements. Companies must maintain detailed records and submit regular reports to regulatory authorities, ensuring transparency and accountability. Meeting these requirements involves meticulous data management, robust internal controls, and timely reporting, which can be resource-intensive and complex.

Q. What have been the key regulatory changes that have occurred in the last 2 decades?

The commodity derivatives market was regulated by the Forward Markets Commission (FMC) up until September 28, 2015. It was then merged with the Securities and Exchange Board of India (SEBI). The move streamlined the regulatory framework across financial markets, enhancing market integrity. Since then, the focus of the regulator has been to create mass investor awareness by reaching out to a wide audience via various modes. Many reforms have been introduced for building investor confidence towards capital markets and through member monitoring. For instance, SEBI has emphasized cybersecurity awareness and business continuity planning, recognising the growing threat of cyber-attacks and technological disruptions. Guidelines on disaster management, technical glitches, and stock exchange outages aim to ensure market infrastructure resilience.

Q. How has technology helped you transform your internal compliance workflows and processes?

Technology assists in automating mundane tasks and helps to track the compliances religiously. One can leverage functionalities like dashboards, reminders, customisable escalations, approval mechanisms etc. The sheer volume and intricacy of compliance requirements necessitate sophisticated technological solutions to ensure adherence and mitigate risks effectively. Technology has become a fundamental component of modern compliance workflows, allowing businesses to manoeuvre regulatory environments with confidence, accuracy, and agility.

However, as they say anything can be a double-edged sword, so one must be mindful of the fact that garbage in is garbage out.

Q. How can young professionals become familiar with compliance and integrate it into the culture of compliance?

Young professionals are often required to update their knowledge of compliance guidelines through relevant courses periodically. Regulatory bodies mandate that employees in regulatory and compliance departments obtain necessary certifications from the National Institute of Securities Markets (NISM). Additionally, the responsibility for digital compliance has increasingly shifted to corporations, with many compliance processes becoming digitized.

Given this landscape, young professionals must be well-versed in compliance and reporting standards. Analytical tools can aid compliance professionals in anticipating and proactively addressing compliance obligations. While young professionals often possess strong technological skills, they may lack domain expertise and industry knowledge. Therefore, they need to spend extended periods working within a company to develop a comprehensive understanding of the business.

About Divyatha Chelani

She is a qualified chartered accountant, CISA and SCR® certified professional with two decades of rich experience in Risk Management and Compliance. She has a proven track record of executing complex projects in Risk Management, Regulatory Compliance and Process Excellence projects in the BFSI domain with local banks and global MNCs. She has engaged with client teams for the execution of end-to-end compliance initiatives with industry leaders like Accenture and MCX. She is humbled to receive various awards and recognition, like the Pinnacle Award for Over and Above Project You Rock, amongst others, for her valuable contribution. She also received the Women in Corporate Award 2022 Trailblazer for Innovation category.

Disclaimer: The views mentioned here by the author are personal and the company is not responsible nor liable for it.

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