'Multiplicity of institutions and regulators created regulatory overlaps’
In the wake of a spate of suicides following loss of life-savings in Ponzi schemes in West Bengal and other states, Finance Minister P. Chidambaram admitted that there were regulatory gaps which created inefficiencies and asserted that efforts were on to frame a new legislation to oversee the present day financial architecture.
Speaking at a seminar organised by the Institute of Company Secretaries of India (ICSI) on the Indian Financial Code (IFC) framed by the Financial Sector Legislative Reforms Commission (FSLRC) with a view to updating the sector-related laws and regulations, Mr. Chidambaram noted that multiplicity of institutions and regulators which had come up from time to time to meet newly-perceived requirements, had potentially created regulatory overlaps, gaps and ambiguity on account of lack of role clarity.
This, he said, created inefficiencies in addressing critical emerging issues in an increasingly dynamic, complex and interconnected financial world.
“The present arrangements have a number of gap areas, where no regulators are unambiguously in-charge, such as issue of regulatory oversight over diverse Ponzi schemes that we have discovered recently. These are cleverly designed to be out of the purview of regulatory agencies,” he said.
Referring to the set of financial rules, regulations and Acts that have been passed in the last 80 years, Mr. Chidambaram pointed out that these and have left lapses and gaps between regulators, the legal system and conflicting policies. The current legislative framework, he said, addressed only temporary pressure and not critical key issues. Besides, there were multiplicity of laws, institutions and regulators that created ambiguity.
The present financial architecture, the Finance Minister said “has evolved over the years with a sequence of piecemeal measures and legislations responding to immediate pressures from time to time. It is not specifically comprehensively designed to meet some key objectives”.
Mr. Chidambaram also highlighted the challenges that lie ahead with regard to legislative changes, capacity building and in handling the complexity of transition from the present to the proposed code. He maintained that a careful analysis of the existing laws in bringing legislative reforms for the financial sector was required and pointed out that the IFC had sought to advocate a non-sectoral and principle-based approach.
“Alongside, very careful analysis of every sentence of the existing laws and every section of proposed code will need to be taken up before we agree upon large scale repeals of legislation. The requirements on this new arrangement will be understood and attempts made to adopt necessary changes,” he said.
In its report, the FSLRC had recommended that financial sector regulators such as Securities and Exchange Board of India (SEBI) (for capital market) and Insurance and Regulatory Development Authority (IRDA) (for insurance) be merged into a Unified Financial Agency (UFA) and the role of the Reserve Bank of India (RBI) should be restricted to regulating banks and managing the country’s monetary policy. Pointing to the challenges ahead in this regard, Mr. Chidambaram said: “I am not sure how much this law will go through in the same fashion when it finally goes to Parliament ...[but it] will be a major milestone in Indian financial sector reforms”.
He observed that since many of the elements of the FSLRC- recommended legal processes were not unacceptable to the present laws, “therefore, I suggest the Ministry of Finance and the regulatory agencies may look seriously at operationalising some of these elements at the earliest even within the scope of the present laws”.
Mr. Chidambaram said people should expect more reforms in the second half of the year. “We expect more reforms and investment in next half of the year. Government will last its full term,” he said.