 "CAG seeks debate on audit of RBI")
Comptroller and Auditor General of India (CAG) Shashi Kant Sharma cited concerns over the oversight of regulators, suggesting that the CAG audit the RBI and other financial sector regulators.
Citing examples of the United States and United Kingdom, Sharma said: "The examples (of the US and UK) cite the moves being made to bring forth more accountability and transparency on financial sector regulators. In India, the CAG doesn’t audit the RBI, whose auditors are appointed by the central government under the provisions of the RBI Act. In light of the growing incidents of financial frauds, this is a thought for consideration: Now, and in the future, our audits should look into the risk and vulnerabilities facing our financial sector, and credibility and effectiveness of regulators to mitigate such incidents,” he said.
“What should be the nature of oversight of the regulators who have such a crucial role to play in protecting the financial sector and thereby the public sector from the ill effects of fraud?,” he asked.
Citing the example of two of the most advanced financial systems in the world, he said: “In the USA, the GAO (Government Accountability Office) (counterpart of CAG in India) didn’t audit the US Federal Reserve till 1978. Post-78, it was allowed to review the Fed’s regulatory duties in the payment system, but was still prohibited from reviewing the deliberations, decisions and actions on monetary policy. But soon after 2009, the year of the financial crisis, the US Congress allowed the GAO to audit loans made by the Fed to individual companies. After 2012, it was further allowed to review Fed’s internal controls, policy on collateral, use of contractors and other activities, whilst still keeping the Fed’s monetary policy outside its ambit.”
Presently, he said, there is an ongoing debate on allowing the GAO to conduct a full scale audit of the Fed’s activities.
In the UK, the Bank of England has historically been outside the ambit of the auditing institution, the NAO (National Audit Office). However, recently, they have passed an Act in May 2016. Bank of England must consult the comptroller in appointing its auditors. That also provides the comptroller access to documents related to audit of bank. The Act also authorises the comptroller and auditor general to carry out examinations into the economy, efficiency and effectiveness with which the bank has used its resources in discharging its functions.
In conclusion, he stressed the need to develop strategies to combat frauds in a country where financial literacy is a challenge, adopt financial literacy as a long-term policy, and the regulators have to work together to not only enhance their capacity to deal with financial frauds, but also to remove any regulatory arbitrage. In order to provide higher level of assurance, such developments are taking place globally; and we must watch these closely and follow our own system of oversight and assurance.