Case for a single regulator for financial services in

IndiaPresented by:

Nitin Maurya (2010140)Pallavi Agarwal (2010142)

Financial regulation is a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system.

This may be handled by either a government or non-government organization.

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Financial Regulation

The motivations for developing the frameworks:• Political pressure following financial collapses. • The need to create a new organisational culture within a recently formed regulatory body.• The need to bring supervisory practices in line with developments in financial institutions’ operations and risk management practices. • The need to deliver ‘integrated’ financial regulation. • A need to improve internal managerial control, to prioritize resources and shift regulation onto a more proactive footing. • A concern to manage the expectations politicians and the wider public had of what regulation could and should achieve.

The regulators:RBI, SEBI, FMC, IRDA, PFRDA, MoF, HLCC

The marketsCommodities, equity, debt, foreign

exchange The players

Brokers, firms, banks, financial institutions, foreign institutional investors, mutual fund managers, investors, exchanges, depositories, custodians, registrars.

Financial Sectors in India

Set up under the RBI Act, 1934 on April 1, 1935. Central office was initially in Calcutta but was moved to

Mumbai in 1937. Initially it was privately owned but since nationalization it is

owned by GoI. Monetary authority. Issuer of currency. Banker and debt manager to government. Banker to banks. REGULATOR OF BANKING SYSTEM. Manager of foreign exchange reserves. Regulator and Supervisor of Payment and Settlement Systems. Regulator of deposit-taking agencies. Developmental role.

RBI

The Securities and Exchange Board of India was established on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act,1992.

Regulator of anything that is exchange–traded.

SEBI

Forward Markets Commission (FMC) headquartered at Mumbai, is a regulatory authority which is overseen by the Ministry of Consumer Affairs, Food and Public Distribution, Govt. of India. It is a statutory body set up in 1953 under the Forward Contracts (Regulation) Act, 1952.

 Regulator of commodity derivative markets, commodity derivative brokers.

FMC

Control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance.

Protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance.

IRDA

PFRDA was established by Government of India on 23rd August, 2003.

The mandate of PFRDA is development and regulation of pension sector in India.

 Government of India moved from a defined benefit pension to a defined contribution based pension system.

PFRDA

Plays a role in creating regulators Legislative work. Big picture policy questions that go beyond

the agenda of any one regulator.

MoF

High Level Coordination Committee on Financial and Capital Markets (HLCC).

Co-ordination between regulators. Members:

Governor, RBIChairman, SEBIChairman, IRDAFinance Secretary, MoF

Member secretary: Joint Secretary, capital markets, at MoF

HLCC

Failure to exploit economies of scale. Turf conflicts. Inhibits products and markets when they

involve multiple regulators. Lack of clarity regarding the domains of

various regulators.

Problems with current Regulatory Structure

Overlapping of regulaory System

 Improving coordination between regulators without having a super-regulator

Use of fast-track courts to ensure quick resolution of conflicts

Ensuring a level playing field between regulators

Developing a consensus-building approach within the various sections of the financial markets, and finally harmonizing regulations across markets.

Changes in Multiple Regulation

Integrated regulation as in UK, Japan, Korea Improve the present system by removing

decades-old design decisions and clarify the mandate.

Need better harmonisation of principles of regulation across the various regulators.

Alternatives to multiple regulation

When the regulatory authorities are converged on a national scale creating a national marketplace for financial products and making financial institutions more competitive.

Single Regulatory Authority system

Single regulator mirrors market environment

Single regulator is efficient Commonality of knowledge Clarity of accountability Information sharing

Pros of a single regulatory system

Diversity of objectives Diseconomies of scale Minimal synergy gains

Cons of single regulatory system

Owned by UK government Regulator of financial service industry Statutory Objectives:

◦ Market confidence◦ Public awareness◦ Consumer protection◦ Reduction of financial crime

Financial Services Authority(FSA)

Reactive than a proactive regulator Weak enforcement program No representative of consumer group in FSA

Board Deviation from the prime responsibility of

protecting consumers

Problems faced by FSA

Should India have a sole regulator??

A single market regulator clearly has its own advantages over multiple regulators. But it is more suitable for well-developed and mature markets which are smaller in size, like the UK. Even the United States, which is supposed to have the most mature financial markets in the world, has multiple regulators

Conclusion

 http://blogs.timesofindia.indiatimes.com/cursor/entry/for-a-single-financial-regulator

http://www.rediff.com/money/2006/feb/13guest.htm

http://www.zurich.com/NR/rdonlyres/D014A15C-676F-4AAA-AA4D-34F4CF81C2CB/134846/fsa_20030617_en.pdf

References