Environmental, Social and Governance (ESG) - Principles and Practice · Governance Influencers

Role of Regulators and Standard Setters in Corporate Governance

Updated 11 October 2026 · Fact-checked

Regulators make binding governance law and enforce it. SEBI governs listed companies through the LODR Regulations, MCA administers the Companies Act, 2013, and RBI governs banks and NBFCs. Standard setters like ICSI and the IFRS Foundation issue standards and guidance. Answer by naming the body, its source of power, its tool and its effect on the company.

Understand Role of Regulators and Standard Setters

Governance does not run on goodwill alone. Rules come from outside the company, and someone must make them, check them and punish breaches. That is the role of regulators and standard setters.

A regulator has legal power. It can make rules, call for information, inspect, and penalise. A standard setter issues technical standards or guidance. Its output may become binding only when a law or a regulator adopts it.

In India, the main bodies are:
- MCA (Ministry of Corporate Affairs): administers the Companies Act, 2013. It frames rules on board composition, committees, CSR, and filings, and works through the Registrar of Companies and the Serious Fraud Investigation Office.
- SEBI: protects investors in securities markets. Through the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, it sets extra governance norms for listed entities, such as independent directors, board committees, related party transaction controls, and periodic disclosures. It also requires the Business Responsibility and Sustainability Report from top listed entities.
- RBI: regulates banks and NBFCs. It issues directions on board composition, fit and proper tests for directors, and risk governance for these entities.
- ICSI: a statutory professional body. It issues Secretarial Standards, which are approved by the Central Government in consultation with NFRA. Section 118(10) of the Companies Act requires companies to observe the Secretarial Standards on Board meetings (SS-1) and general meetings (SS-2) specified under that provision. Other standards, such as SS-3 (dividend) and SS-4 (CSR), have a different status and are recommendatory. ICSI also issues guidance notes and governance recommendations.
- IFRS Foundation: a global body whose ISSB issues sustainability disclosure standards. These do not bind Indian companies unless adopted by an Indian authority, but they influence the direction of Indian disclosure norms.

A useful way to remember this: law-makers say what must be done, enforcers check it, and standard setters explain how to do it well. For a listed company, several layers apply at once. The Companies Act applies to all companies, and LODR adds more for listed ones. A listed bank also faces RBI directions.

Key rules to remember

Regulator versus standard setter: Regulator = legal power to make rules, inspect and penalise; Standard setter = issues standards or guidance; A standard becomes binding only if law or a regulator makes it so. Secretarial Standards are binding because the Companies Act requires compliance with them.
Layering for a listed company: Companies Act, 2013 (MCA) + SEBI LODR Regulations, 2015 + sector rules (e.g. RBI for banks); Where two laws apply, the company must meet both. Do not treat them as alternatives.
Answer chain: Body → source of power → tool used → effect on governance; Use this chain for every regulator in an answer.
Who covers what: MCA: all companies | SEBI: listed entities and market intermediaries | RBI: banks, NBFCs | ICSI: Secretarial Standards and professional guidance | IFRS Foundation: global reporting standards; Learn the scope of each body. Many marks are lost by mixing scope.

How to solve Role of Regulators and Standard Setters questions

Questions on this topic are usually case-based or ask you to discuss a regulator's role. Use one fixed structure so you do not miss any body or link.

1Read the facts and list the entity type: private company, unlisted public company, listed company, bank or NBFC.
2Identify every regulator that applies to that entity type, using the scope list.
3For each regulator, name the source of power, for example the Companies Act, 2013 or the SEBI Act, 1992 with LODR.
4State the tool each uses: rules, disclosures, committees, inspection, penalties, or standards.
5Apply it to the facts. Say which requirement the company met or failed.
6Conclude with the effect on governance: transparency, accountability, investor protection.
7Add a practical point: what the company secretary should file, disclose or advise.

Quickest way: Four-line regulator grid

When to use it: Use it when time is short or the question says 'discuss the role of' a body.

Line 1: who the body is and what it covers.
Line 2: its legal source or authority.
Line 3: two or three concrete governance tools, such as independent directors, committees, disclosures, standards.
Line 4: the effect and the company secretary's compliance role.
Repeat the grid for each body asked. Keep to the body's own area.

Common mistakes in Role of Regulators and Standard Setters

Saying SEBI regulates all companies.
Students link SEBI with governance in general.
Fix: SEBI's LODR norms bind listed entities. Unlisted companies are under the Companies Act, 2013 and MCA.
Treating ICSI standards as optional advice.
Students confuse Secretarial Standards with guidance notes.
Fix: Secretarial Standards are binding because the Companies Act requires companies to observe them. Guidance notes and recommendations are persuasive only.
Saying IFRS or ISSB standards bind Indian companies directly.
Students assume global bodies have legal power in India.
Fix: Say they bind only when adopted by an Indian authority. Until then they influence practice and policy.
Ignoring RBI for banks and NBFCs in a case question.
Students focus on SEBI and MCA only.
Fix: Check the sector. For a bank or NBFC, add RBI directions on board and risk governance.
Listing bodies without applying them to the facts.
Students memorise roles but skip analysis.
Fix: Tie each regulator to a fact in the case and reach a conclusion, as the paper expects provision, analysis and conclusion.

Worked examples

Example 1

Anand Textiles Ltd is listed on a stock exchange. Its board has no independent director and it has not formed an audit committee. Which regulators are concerned and what are the governance consequences?

Show the solution

Entity type: a listed company, so both the Companies Act, 2013 and SEBI LODR apply.
MCA: section 149(4) of the Companies Act requires every listed public company to have at least one-third of its board as independent directors. Section 177 requires an audit committee for all listed companies (and for prescribed classes of public companies). A breach of these provisions is dealt with under the Act, through its penalty provisions and the Registrar of Companies.
SEBI: LODR Regulations separately require a board with independent directors and a qualified audit committee for listed entities. A breach of LODR is dealt with by SEBI and the stock exchanges, which can act against the company and its officers for non-compliance.
Analysis: the facts show both requirements are unmet, so the company breaches both laws at once.
Conclusion and action: the board should appoint independent directors, constitute the audit committee, make the required disclosures to the exchange, and the company secretary should advise on remedial filings and likely penalties.

Answer: MCA (under the Companies Act, 2013) and SEBI (under LODR) both apply. Anand Textiles breaches section 149(4) (independent directors, at least one-third of the board) and section 177 (audit committee), as well as the LODR requirements. The Companies Act breach is dealt with under the Act (Registrar of Companies and the penalty provisions), and the LODR breach by SEBI and the stock exchanges. The company must appoint independent directors, form the audit committee and make disclosures, facing penalties if it does not.

Example 2

Explain how ICSI and the IFRS Foundation influence corporate governance, and whether their standards bind a company in India.

Show the solution

ICSI: a statutory professional body. It issues Secretarial Standards, such as on board and general meetings.
The Companies Act requires companies to observe Secretarial Standards, so these are binding in India.
ICSI also issues guidance notes and governance recommendations. These guide practice but do not carry legal force on their own.
IFRS Foundation: a global body. Its ISSB issues sustainability and climate disclosure standards that investors use to compare companies.
These standards are not binding in India unless adopted by an Indian authority. They shape the direction of Indian norms and some companies use them voluntarily.
Conclusion: standard setters raise the quality of governance and disclosure, with legal force depending on adoption.

Answer: ICSI's Secretarial Standards bind companies because the Companies Act requires observance, while its guidance is persuasive. IFRS Foundation standards are not binding in India unless adopted, but they influence disclosure practice.

Exam tips

Write the regulator's scope in the first line. Examiners check that you do not mix MCA, SEBI and RBI.
In case questions, tie each regulator to a fact before concluding.
Distinguish binding from persuasive instruments clearly. This earns easy marks.
Use the exact names: SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Companies Act, 2013.
Close with a practical company secretary point: filing, disclosure, or advice to the board.

Practice questions from Governance Influencers

Role of Regulators and Standard Setters: frequently asked questions

What is the role of SEBI in corporate governance?

SEBI protects investors and develops the securities market. Through the LODR Regulations it sets governance norms for listed entities, including board composition, committees, related party controls and disclosures. It can inspect and penalise non-compliance.

How is MCA's role different from SEBI's?

MCA administers the Companies Act, 2013 and covers all companies. SEBI covers listed entities and market participants. A listed company must comply with both.

Are ICSI Secretarial Standards mandatory?

Yes. The Companies Act requires companies to observe Secretarial Standards on board and general meetings. ICSI guidance notes, by contrast, are persuasive and not binding on their own.

Do IFRS Foundation standards apply in India?

Not automatically. They bind only when an Indian authority adopts them. They still influence Indian disclosure practice and policy thinking.