The chief of India’s markets regulator on Friday called for a stronger financial oversight across the country’s booming capital markets, urging auditors, directors and governance professionals to act as gatekeepers against potential fraud.
“It is your vigilance, your courage to ask difficult questions and your refusal to look away that will ensure our markets continue to command global trust,” Securities and Exchange Board of India (Sebi) chairperson Tuhin Kanta Pandey said at an event.
The future, he said, will be determined by our collective ability to anticipate risks and detect anomalies early on.
Pandey’s call for a sharper focus on financial vigilance comes weeks after Sebi temporarily banned Jane Street from Indian markets, accusing the US trading firm of manipulating stock indexes through its derivatives positions.
Addressing members of the Institute of Chartered Accountants of India (ICAI) at an event of forensics auditing, Pandey did not mince words about the challenges that have accompanied unprecedented growth of the securities market.
“An unprecedented growth in the securities market has been witnessed over the last five years,” Pandey said, citing surging investor participation as both an opportunity and a test for the integrity of India’s financial systems.
Pandey recounted striking recent Sebi investigations, highlighting cases where the listed entity transferred assets to its subsidiary. “The loan obtained by the subsidiary against these assets were then used to repay the outstanding loan of a promoter-linked entity.”
In other Sebi probes, investigations revealed that the company inflated its financials by entering into transactions with a number of name lending entities in a circular manner. “The promoters then siphoned off shareholder funds or assets to their companies under the pretext of purchases sales from them or to them,” Pandey said.
Amid such complex misconduct, Pandey said that perhaps only a tick-box approach is being followed by some KMPs (key managerial personnel), statutory auditors and members of the audit committee and directors of the boards of listed entities towards compliance.
The consequences, he warned, are stark. “Beyond loss to the shareholder wealth, they erode investor confidence, discourage genuine investment and directly undermine market integrity.”
Pandey called for a new mindset, one that recognizes forensic accounting as an ongoing, built-in safeguard rather than a tool deployed only after crises. “Forensic accounting should not be treated as a post-fraud tool only, rather it needs to evolve into a proactive discipline embedded within the structure of corporate controls,” he said.
As India’s exchanges race ahead, with 130 million unique investors and robust equity fund flows, Pandey cautioned regulators and auditors not to become complacent or over-reliant on systems alone.
“While technology can reveal fraudulent patterns, it is the human mind that interprets context, applies practical understanding and ultimately exposes fraud,” he observed, sharing a telling case in which “the font did not even exist on the date mentioned in the document,” detected as a clue to tax evasion.
The chairperson stressed the expanded scope of regulatory action and cooperation, from shareholder oversight of related-party transactions to “joint training programs in the area of digital forensics, forensic accounting apart from other forensic tools.”
