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The proposal of the Financial Sector Legislative Reforms Commission (FSLRC) to have a unified regulator for the financial sector has not gone down well with former regulators of various financial sectors.
Former regulators and industry experts are of the view that a super-regulator would not be able to do justice in addressing the varied problems that each of the financial sector faces.
A government-appointed panel, chaired by retired Supreme Court judge B N Srikrishna, on Friday proposed a unified regulator for markets, insurance, commodities and pensions. The panel, whose proposals could change the financial landscape of India, also suggested five additional agencies, including an appellate tribunal that would subsume the Securities Appellate Tribunal (SAT).
The panel gave its report to Finance Minister P Chidambaram, who said the report would be made public in three to four days, after he discussed it with the Prime Minister.
C S Rao, former chairman of the Insurance and Regulatory Development Authority (Irda), said this proposal might not help at a time when some countries that had adopted a super regulator model are turning back to the original regulatory structure of individual regulators. He added that, in small nations, like Singapore, it could be feasible, where this model would help avoid overlaps. "In a large country like India, you need expertise in each field. This proposal would lead to a situation where people at the lateral level would have very little background of the segment (example: insurance or stock markets) that they are working for. In some situations, a stock market expert could be working on insurance issue or vice versa," he said.
Some others differ. G N Bajpai, former chairman of the Securities and Exchange Board of India (Sebi) favoured a consolidated regulator for all financial services. “As FSDC is already existing, the concept of a consolidated regulator has already been accepted in India. In any case, that’s the need of the hour.”
His opinion is significant as at present, different regulators for different financial services leave room for regulatory arbitrage as distributors for these different products are the same. Distributors sell all products -- be they life or non-life insurance, MFs, bank products or security market products. Different regulators and different rules framed by them only create confusion for investors/customers.
Rao said, “Some have a view that the unified regulator model would help remove inter-regulatory disputes. But, I believe that to deal with this issue, we need to have alternate mechanisms in place, rather than having a super regulator.”
B C Khatua, former chairman of commodity derivatives market regulator, the Forward Markets Commission thinks the commodity market needs a different treatment as it is still not mature and need to be nurtured. He said, “Commodity market is also a fundamentally different market from equity, insurance or pension segments. The basic intent of the commodity market is risk management and investment is incidental,” he said.
However, he has a different view for integration of regulatory practices in commodities. He said, “We have a separate regulator for commodities and for warehouses, and both should be consolidated under one regulator as commodity exchanges in any case recognise warehouses. In future, warehouse receipts will be traded on the same commodity exchanges as negotiable instruments.”
The approach paper had also said there was a need for separating the adjudication function from the mainstream activities of a regulator, to achieve greater separation of powers. This, said a former financial sector regulator, would curb the independent regulatory powers of the financial sector regulator.
Lack of clarity could also be an issue, said some ex-regulators. J Hari Narayan, former Irda chairman, said the proposed model would lead to further confusion in the system. “The proposal lacks clarity. It has been adopted from the English model, which has its own faults. Dilution of regulations seem to be the purpose behind this proposal,” he said.
