Fresh salvos in the long war over regulatory territory seem to have been fired.
Reserve Bank of India (RBI) governor D. Subbarao in a speech on Thursday more or less shot down the call for a unified financial sector regulator.
Meanwhile, Mint reported on Wednesday that the informal high-level coordination committee on financial markets (HLCC-FM) could soon be written into law, becoming a statutory body. HLCC consists of regulatory heavy hitters: heads of RBI, the Securities and Exchange Board of India (Sebi), Insurance Regulatory and Development Authority (Irda) and the Pension Fund Regulatory and Development Authority (PFRDA)—and the secretary of the department of economic affairs in the finance ministry.
Illustration: Jayachandran / Mint
Those are a lot of acronyms in one room. The big question is whether we need another acronym—a super regulator on the lines of the Financial Services Authority (FSA) in the UK that polices banks, insurance companies, mutual funds and all other financial intermediaries.
Subbarao has done well to gently distance himself and the central bank from such proposals. “There is a view that the HLCC-FM should be given a formal structure. While a formal structure will have the merit of enforcing accountability, the flip side is that it may make the forum excessively bureaucratic and detract from its other value-adding features. This is an issue that we must debate further.”
There has been a deep divide within India about whether we need such a unified regulator or not, as a look at reports by the Raghuram Rajan committee and the Rakesh Mohan-chaired committee on financial sector assessment shows.
The HLCC is a good idea and its functioning needs to be strengthened. But the move to give it a statutory status suggests that its brief could later be expanded to cover oversight of all financial firms. The government needs to start an open debate. The global experience of the past two years has shown that old regulatory boundaries need to be redrawn, but there is intense disagreement on what the new structure should look like.
A copy and paste of Western institutional models will not work especially since the West itself is struggling with its own institutional challenges; what was considered best practice two years ago may no longer be so.
India will also have issues of transparency and political economy. A new super regulator controlled by the finance ministry and—by extension —the political class is something to be wary of.
Does India need a UK-style financial super regulator? Tell us at email@example.com