Damodaran says no to 'super regulator'

Securities and Exchange Board of India Chairman M Damodaran has disapproved the idea of a "super regulator" for the financial sector as mooted by the Reserve Bank of India.

The RBI, in a report on currency and finance, has called for an umbrella regulatory legislation to deal with the existing gaps and overlaps in financial sector regulation.

At present, the banking and financial supervision arm of the RBI supervises banks and non-banks, the IRDA supervises insurance companies and Sebi regulates the capital market.

The mandate of the new legislation proposed by the RBI was to create an apex regulatory authority without disturbing the existing jurisdiction.

"The apex financial regulatory authority may be constituted by statute with the governor of the RBI as chairman and the members can be chairmen of the three regulatory agencies," the report said.

But, pointing out that the existing regulatory mechanism in the financial sector was working "very well", Damodaran discounted the formation of any umbrella body. There are several regulatory models now working in different countries.

While in the UK, it is a unified model to supervise financial services, the capital market and insurance, in the US there are separate regulators to oversee all these operations. Similarly in India, there are function-specific regulators looking after different aspects of the financial sector.

Stating that the financial sector had undergone massive changes in the country, Damodaran pointed out that there were now entities that had overlapping interests in banking, the capital market and in the insurance sector.

But, according to the present system, the lead regulator, depending on the principal activity of an entity, coordinates with other regulators to supervise the operation of an organisation.

Besides, the high-level committee presided over by the RBI governor, and Sebi chairman and finance secretary as members; looks into all inter-regulatory issues periodically.

"This is working very well in India. I do not think, in a hurry, you are going to see a new model in the future just because somewhere else it is being implemented," Damodaran said.

He further pointed out that Sebi was now looking into two issues relating to the mutual fund industry. "The first is the fee structure of the mutual fund industry and the second is the regulation of the distribution sector. I feel the fee structure should be based on the tenure of a fund and not on transactions," he said.

Similarly distribution activities should be regulated in such a manner that distributors do not take away too much money from the system.

On the revival of regional stock exchanges now gasping for breath, he said, with the National Stock Exchange and the Bombay Stock Exchange cornering 99 per cent of business, transactions at regional stock exchanges were nominal.

But, 15 of the 21 regional stock exchanges in the country have formed subsidiaries which have taken BSE or NSE membership and are operating through their terminals.

Hence, parent regional bourses should now merge into their respective subsidiaries or move to trading in other areas like commodities. The third option, he said, was that regional bourses should come together and form a third national-level stock exchange.

He also said the Anantaraman Committee, set up by Sebi, will submit a report on reviving regional stock exchanges in three weeks.