Steps initiated to improve regulatory governance process

The activities of unregulated players in the financial market is adversely impacting a large number of consumers and the Centre had to act swiftly to set right the situation, Union Finance Minister P. Chidambaram said on Monday.

Addressing a national seminar on the ‘Indian Financial Code’ recommended by the Financial Sector Legislative Reforms Commission (FSLRC), organised by the Institute of Company Secretaries of India (ICSI) here, he said the financial sector, operating with speed and dynamism, had generated new space, sometimes even undefined areas, which provided opportunities for unregulated players in the market.

The multiplicity of institutions and regulators that had come up from time to time to meet the newly-perceived requirements had potentially created regulatory overlaps, gaps and ambiguity on account of lack of clarity over their roles, he said.

“The existence of such unregulated players, who operate in the twilight zone, endangers the discipline of the markets, leading to systemic instability. Invariably, such activities adversely impact a large number of consumers. This reduces their confidence in the system. We believe that we must move quickly to remove all unregulated space, as the Centre is focussed on protecting consumers,” he said.

Mr. Chidambaram said, “A financial consumer is comfortable to participate in a regulated market where there are no sharks. These should be an assurance that they would be protected if they get into problems. However, exploiting the limitations of the regulatory architecture, ingenious financial engineers come up with innovative products outside the regulatory jurisdiction and deprive the consumers of such products of regulatory protection.”

The government’s endeavour was to eliminate unregulated space, Mr. Chidambaram said and quoted an ordinance promulgated on July 18 and re-promulgated on September 16, which considers any rising of resources by whatever means, if not regulated otherwise, as a collective investment scheme.

During the last few decades, India witnessed several new legislative initiatives, including the SEBI Act, IRDA Act and various amendments to the law on the financial sector.

“We have travelled at a reasonable speed in financial sector reforms since the early 1990s. But, the speed is not good enough, as financial developments unfold thick and fast.”

Mentioning that the Government has already initiated steps to improve the regulatory governance process and initiated discussion on the non-legislative steps recommended by the FSLRC, he said: “The legislative parts will be pursued after due consultations. We will set up various project management groups for charting, synchronising and sequencing the actions required in implementing the big institutional changes.”

In the welcome address, ICSI president S.N. Ananthasubramanian said ICSI’s endeavour was not only to promote good corporate governance but also market governance to ensure a seamless relationship between the two.