1

Project on

ESTABLISHMENT OF SUPER REGULATOR IN

INDIA

AS PER

THE REQUIREMENT OF REGULATION OF BANKING AND INSURANCE INSTITUTIONS

COURSE

SUBMITTED TO - Prof. (Dr.) O. V. Nandimath

SUBMITTED BY

Rekha Patil-I.D No. 532

Ronak Karanpuria-I.D No. 534

LL.M -2nd Year

NATIONAL LAW SCHOOL OF INDIA

UNIVERSITY, BANGALORE

2

ACKNOWLEDGEMENT

We express our sincere gratitude to Prof. (Dr.) O.V Nandimath, National Law School of India

University, Bangalore, and owe our foremost regards to him for giving us an opportunity to

carry out this project work under his guidance. This work would not have been possible

without his invaluable support and thought provoking comments.

We would also like to thank my batch mates who directly or indirectly helped us in making

this project.

Rekha Patil

Ronak Karanpuria

LL.M. 2ndYEAR

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TABLE OF CONTENTS

S.NO. PARTICULARS Pg. no.

1 INTRODUCTION

2 HOW MARKETS ARE REGULATED?

3 SUPER REGULATOR IN INDIA?

4 COMMITTEE REPORT

5 REGULATOR JURISDICTION DISPUTE

6 NEED TO HAVE SUPER REGULATOR

7 CHALLENGES

8 CONCEPT OF SUPER REGULATOR IN OTHER

COUNTRIES

9 CONCLUSION

10 BIBLIOGRAPHY

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RESEARCH METHODOLOGY

AIM AND OBJECTIVE:

The aim of this research paper is to analyse the concept of super regulator and its

establishment in India.

OBJECTIVES

To study the aspects of financial market in India

To study the background of regulation in India.

To examine the need to have super regulator in India.

To explain the objectives & challenges of super regulator.

To study & analyse the concept of super regulator in other countries.

RESEARCH QUESTIONS

1. What are the advantages of establishing the super regulator over the sectorial

regulators?

2. What are the challenges faced by the super regulator?

3. Whether there is a necessity of super regulator in India?

RESEARCH METHODOLOGY

The research methodology adopted is descriptive and analytical in approach.

LIMITATION:

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The field study would have been desirable but due to paucity of time this paper is limited

only to the theoretical aspect of establishment of super regulator which have been gathered

from various sources including books, articles, and journals.

SOURCES OF DATA

The Researcher has mainly relied on Primary and Secondary sources of data.

MODE OF CITATION

A uniform system of citation would be adopted throughout the project.

INTRODUCTION:

The financial sector has witnessed significant changes world-wide in recent decades,

following globalisation, deregulation and technological advances. These developments,

which are inter-related and mutually reinforcing, have, in turn, led to blurring of traditional

distinctions which used to apply across types of firms, products and distribution channels on

the one hand and the emergence of financial conglomerates on the other. This resultant poses

a regulatory challenge. The need for harmonisation in regulation has generated a debate about

the appropriate regulatory/supervisory structures both in policy and academic circles.

As financial institutions normally specialised in a particular business activity, the distinction

between institutional and functional regulation was not considered of much significance so

that regulating an entity was the same thing as regulating its core business. For instance,

regulating banks meant regulating the business of banking and regulating the insurance

company meant the same thing as regulating the business of insurance. In the face of blurring

of activities among financial service providers and emergence of financial conglomerates

(i.e., financial institutions undertaking a combination of activities), the institutional structure

of supervision has become a major issue of policy debate in several countries.

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In recent years, some countries have set up super regulators for the financial sector. In the

Indian context as well, it has been suggested in some quarters that there is a need for a super

regulator. As the underlying rationale for creation of a super regulator is to deal with the

regulatory challenges emerging from the blurring or convergence of activities performed by

providers of various financial services and the resultant overlaps, gaps, inconsistencies and

uneven playing field in regulation, this paper systematically examines in detail whether and

to what extent such elements are present in India.

There is also no evidence of an uneven playing field amongst similar financial institutions.

One significant development has been the emergence of financial conglomerates. However,

their number is not very large. As such, the study argues that there is no case for a super

regulator in India. Given the present institutional settings in India, the institution of a super

regulator could have serious ramifications for the stability of the financial system. While

there is no case for a super regulator in India, the need is felt to have in place a lead

regulator.

1HOW MARKET SECTORS ARE REGULATED?

The financial system in India is regulated by independent and specialised regulators in the

respective field of banking, insurance, capital market, commodities market, and pension

funds. However, Government of India plays a significant role in controlling the financial

system in India and influences the roles of such regulators at least to some extent.

The five major financial regulatory bodies in india.

A) Statutory Bodies via parliamentary enactments:

1. Reserve Bank of India: Reserve Bank of India2 is the apex monetary Institution of India.

It is also called as the central bank of the country. It acts as the apex monetary authority of

the country. The Central Office is where the Governor sits and is where policies are

1 http://www.allbankingsolutions.com/Banking-Tutor/Regulatory-Bodies-in-India-RBI-SEBI-IRDA.shtml 2 See http://www.rbi.org.in/scripts/AboutusDisplay.aspx The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated. Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

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formulated. Though originally privately owned, since nationalization in 1949, the Reserve

Bank is fully owned by the Government of India. The preamble of the reserve bank of India

is as follows:

"...to regulate the issue of Bank Notes and keeping of reserves with a view to securing

monetary stability in India and generally to operate the currency and credit system of the

country to its advantage."

Focus on:

supervision of financial institutions

consolidated accounting

legal issues in bank frauds

divergence in assessments of non-performing assets and

supervisory rating model for banks

2. Securities and Exchange Board of India: SEBI Act, 1992 : Securities and Exchange

Board of India (SEBI)3 was first established in the year 1988 as a non-statutory body for

regulating the securities market. It became an autonomous body in 1992 and more powers

were given through an ordinance. SEBI basic function is:

"...to protect the interests of investors in securities and to promote the development of, and to

regulate the securities market and for matters connected therewith or incidental thereto"

3. Insurance Regulatory and Development Authority: The Insurance Regulatory and

Development Authority (IRDA)4 is a national agency of the Government of India. Mission of

IRDA as stated in the act is "to protect the interests of the policyholders, to regulate, promote

and ensure orderly growth of the insurance industry and for matters connected therewith or

incidental thereto."

(B) Part of the Ministries of the Government of India:

3 http://www.sebi.gov.in/sebiweb/stpages/about_sebi.jsp 4 http://www.irda.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo1332&mid=1.9 It was formed by an Act of Indian Parliament known as IRDA Act 1999, which was amended in 2002 to incorporate some emerging requirements.

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4. Forward Market Commission India (FMC): 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, 19525. Its mission is:

to provide for the regulation of certain matters relating to forward contracts, the prohibition

of options in goods and for matters connected therewith.

5. PFRDA under the Finance Ministry: Pension Fund Regulatory and Development

Authority: PFRDA6 was established by Government of India on 23rd August, 2003. to

promote old age income security by establishing, developing and regulating pension funds, to

protect the interests of subscribers to schemes of pension funds and for matters connected

therewith or incidental thereto.

SUPER REGULATOR IN INDIA:

The idea of a super regulator for the Indian financial system was first mooted by the Khan

Working Group for Harmonising the Role and Operations of Banks and Development

Financial Institutions (DFIs) (hereinafter referred to as KWG)7 set up by the Reserve Bank of

India (RBI), which submitted its report in May 1998. However, a careful reading of the report

reveals that although the KWG (1998) used the term super regulator, what it had in mind

was lead regulator, which is evident from the following:

In view of the increasing overlap in functions being performed by various participants in the

financial system, the Group feels that a measure of coordination among regulators is

5 http://www.fmc.gov.in/index1.aspx?lid=26&langid=2&linkid=18 The Commission has been keeping the commodity futures markets well regulated. In order to protect market integrity, the Commission has prescribed the following measures

1. Limit on open position of an individual members as well as client to prevent over trading; 2. Limit on price fluctuation (daily/weekly) to prevent abrupt upswing or downswing in prices; 3. Special margin deposits to be collected on outstanding purchases or sales to curb excessive

speculative activity through financial restraints; Currently 5 national exchanges, viz. Multi Commodity Exchange, Mumbai; National Commodity and Derivatives Exchange, Mumbai and National Multi Commodity Exchange, Ahmedabad, Indian Commodity Exchange Ltd., Mumbai (ICEX) and ACE Derivatives and Commodity Exchange, regulate forward trading in 113 commodities. Besides, there are 16 Commodity specific exchanges recognized for regulating trading in various commodities approved by the Commission under the Forward Contracts (Regulation) Act, 1952 6 http://pfrda.org.in/indexmain.asp?linkid=56 The Government has, through an executive order dated 10th October 2003, mandated PFRDA to act as a regulator for the pension sector. The mandate of PFRDA is development and regulation of pension sector in India. 7 http://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=387

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desirable. The Group, therefore, recommends the establishment of a super regulator (or

regulator of regulators) to supervise and coordinate the activities of these multiple regulators

in order to ensure uniformity in regulatory treatment (pp 7).

Thus, the KWG did not recommend merging of all regulators into one. Although it used the

term super regulator, the underlying idea was that of a lead regulator to coordinate the

activities of various regulators. Narasimham Committee II (1998)8 did not touch upon the

issue of a super regulator nor did the Discussion Paper (1999) released by the Reserve Bank

in January 1999 in response to the two aforesaid high-powered committees.

The Deepak Parekh Advisory Group (DPAG) on Securities Market Regulation (2001)9

referring to the diffusion of regulatory responsibilities observed that there may be a merit in

formalising the High Level Group on Capital Markets (HLGCM) by giving it a legal status. It

also recommended that a system needs to be devised to allow designated functionaries to

share specified market information on a routine and automatic basis. Thus, DPAG also

stopped short of recommending the institution of a super regulator.

The issue of choosing between single and multiple regulators for financial system in the

Indian context was dealt in detail for the first time by Y V Reddy, the then deputy governor

and the governor of RBI, in his speech delivered in May 2001. However, Reddy also did not

recommend the institution of a super regulator for the Indian financial system. Instead, he

wanted to explore the feasibility of an umbrella regulatory legislation, which can create an

apex regulatory authority without disturbing the existing jurisdiction.

The case for a super regulator in the Indian context for the first time was made by Mor and

Nitsure (2002) who argued that in India the existence of multiple regulators has segmented

markets and created certain systemic distortions10. Also, unequal regulatory burdens and

fragmented markets give rise to severe distortions in prices such as interest rates. They

argued that streamlined oversight by a super regulator may be able to deliver an improved

supervision at lower cost and may better align different supervisory functions with economic

realities. While Mor and Nitsure strongly argued in favour of a super regulator on the ground

that existence of multiple regulators has created certain systemic distortions, they provided no

8 www.bis.org/review/r010524c.pdf 9http://drnarendrajadhav.info/drnjadhav_web_files/Published%20papers/Single%20versus%20Multiple%20Regulator.pdf 10 www.bis.org/publ/bppdf/bispap62.pdf

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evidence whatsoever to prove their point. The Joint Parliamentary Committee (2002)11 in its

report also touched upon the issue of a super regulator. While feeling that there is a need for

better and closer coordination amongst the multiple agencies involved in the financial system,

the committee observed that super regulator is not the answer to the problem.12

The issue of a super regulator in the Indian context has been examined from the two

viewpoints. One, as the institution of a super regulator has been suggested mainly on the

grounds of regulatory overlaps, gaps, inconsistencies, etc, an attempt has been made to

ascertain whether and to what extent these elements are present in the Indian financial

system. Two, what would be the ramifications if a system of unified structure or super

regulator is adopted in India.

Several significant developments have taken place in the Indian financial system since the

second half of the 1980s. Some of the major changes relevant to the question under

examination are set out below: Two DFIs (ICICI and IDBI), have converted into banks. Two

banks (SBI and ICICI Bank) have diversified into a number of activities including insurance,

securities, mutual fund, etc. Some banks (Canara Bank, Bank of Baroda, Bank of India,

Punjab National Bank and Indian Bank) have set up subsidiaries to undertake

securities/merchant banking and mutual funds related activities. Some other banks

(Allahabad Bank, Rajasthan Bank and Federal Bank) have also set up subsidiaries for

undertaking merchant banking business. Some banks have plans to enter into insurance

business. While two banks (Jammu and Kashmir Bank and Vysya Bank) have been accorded

approval to participate in the equity of joint ventures on a risk participation basis, two other

banks (Punjab National Bank and Vijaya Bank) have been permitted to make a strategic

investment up to certain limits in the life and non-life insurance joint venture and in a

distribution and services company. Besides, some banks have also been given in principle

approval to act as a corporate agent of insurance companies for distribution of insurance

products on a fee basis.

Are there overlaps/conflicts, gaps and uneven playing field in the financial regulatory system

in India?: The question which we need to examine here is whether the above referred

changes/ developments have led to overlaps and conflicts in regulation.

11 www.watchoutinvestors.in/JPC_REPORT.PDF 12 http://articles.economictimes.indiatimes.com/2002-04-08/news/27346780_1_super-regulator-jalan-rbi-governor

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COMMITTEE ON ESTABLISHMENT OF SUPER REGULATOR

1. Financial Sector Legislative Reforms Commission (FSLRC)13

Financial Sector Legislative Reforms Commission (FSLRC) was set up by the Indian

Government in pursuance of the announcement made in Union Budget 2010-11, to help

rewriting and harmonizing the financial sector legislation, rules and regulations so as to

address the contemporaneous requirements of the sector. The resolution notifying the FSLRC

was issued on March 24, 2011. FSLRC had a two year term.

The Commission was chaired by Supreme Court Justice (Retired) B. N. Srikrishna, and had

ten members with expertise in the fields of finance, economics, law and other relevant fields.

The secretariat was placed at National Institute of Public Finance and Policy (NIPFP).

Secretariat consisted of a Secretary at the level of Joint Secretary to the Government of India

and other officials and support staff.

The establishment of the FSLRC is the result of a realisation that the institutional foundation

(laws and organizations) of the financial sector in India needs to be looked afresh to assess its

soundness for addressing the emerging requirements in a rapidly changing world. Today,

India has over 60 Acts and multiple Rules/ Regulations that govern the financial sector. Many

of them have been written several decades back. For example, the RBI Act and the Insurance

Act are of 1934 and 1938 vintage respectively and the Securities Contract Regulation Act,

which governs securities transactions, was legislated in 1956 when derivatives and statutory

regulators were unknown in the financial system. A Large number of amendments were,

therefore, made in these Acts and regulations at different points of time to address various

needs. But these have also resulted in their fragmentation, often adding to the ambiguity and

complexity of regulations in the financial sector.

Key Recommendations of the committee:

The commission has proposed a sector-neutral Indian Financial Code to replace multiple and

old financial sector laws, splitting the regulation between the Reserve Bank of India and a

new Unified Financial Agency that will oversee the remaining financial sector. In effect, the

proposed unified financial sector regulator would subsume, repeal and basically every

13 http://www.simplydecoded.com/2013/03/29/financial-sector-reforms-recomendations/

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existing law that deals with sector regulators like Sebi, IRDA, PFRDA and at least some

functions of the Forward Markets Commission. These laws include principal and main

legislations like the Securities and Exchange Board of India Act (Sebi Act), the Reserve Bank

of India Act (RBI Act). Even as the RBI Act is separate, all other laws (essentially 20 laws)

would get repealed, while there would be amendments in many other laws. In short the

Securities and Exchange Board of India ( Sebi),Forward Markets Commission (FMC),

Insurance Regulatory and Development Authority ( IRDA) and Pension Fund Regulatory and

Development Authority (PFRDA) should be merged into this new agency.

A Financial Sector Appellate Tribunal will hear appeals against all financial sector regulators

and into which the existing Securities Appellate Tribunal will be subsumed and a Resolution

Corporation will replace the Deposit Insurance and Credit Guarantee Corporation of India,

which assists in closure of distressed financial sector institutions.

According to the report RBI will be divested of its powers over management of public debt,

which is currently one of its subsidiary functions. The Debt Management Bill, likely to be

considered by the Cabinet, proposes a separate debt management office to be attached to the

finance ministry. The report also recommends creation of a public debt management office, a

recommendation that was criticized by RBI when the draft report was issued for

consultations.

It also recommends empowering the existing Financial Stability and Development Council,

by making it a statutory body responsible for managing risk and crises in the financial

system. The report also recommends setting up of a financial data cell, which will look out

for systemic risk in the financial sector, especially the ones arising out of the financial

conglomerates.

REGULATORS DISPUTE OVER JURISDICTION

1. ULIP TUSSLE: SUPREME COURT TALKS OF SUPER REGULATOR14

Taking a dig at the wrangling between market regulator Securities and Exchange Board of

India (SEBI) and Insurance Regulatory and Development Authority (IRDA) over Unit

14 http://www.hindustantimes.com/business-news/ulip-tussle-supreme-court-talks-of-super-regulator/article1-537728.aspx

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Linked Insurance Plans (ULIPs), the Supreme Court recently wondered if the industry needed

a super regulator.

Why not appoint a super regulator? a bench headed by Chief Justice of India-in waiting SH

Kapadia remarked after Attorney General GE Vahanvati mentioned SEBIs petition seeking

clubbing of cases pending in various high courts on the ULIP controversy. Explaining the

controversy, Vahanvati said the insurance companies have collected Rs 90,000 crore under

ULIPs and they are investing the money in mutual funds, which fall in the jurisdiction of

SEBI. SEBI and IRDA have been at loggerheads over regulating ULIPs and the market

regulator approached the apex court after the two regulators failed to resolve their

differences. While IRDA allowed insurers to continue selling ULIPs, SEBI sought to stop

them asserting that they fell in its jurisdiction. Acting on SEBIs petition, the court issued

notices to the Centre, IRDA and 14 insurance companies, asking them to respond by July 8,

the next date of hearing. It also issued notices to two petitioners Dhruv Kumar and Rak

Thackeray who have filed PILs in Allahabad and Bombay high courts. Raj has questioned

SEBIs decision while Dhruv has complained that the insurers were charging high

commissions.

However, the court posed certain questions to the attorney general before issuing notices to

the various parties. SEBI is in Mumbai insurance companies are in Mumbai LIC is in

Mumbai, the bench said suggesting that the issue could be resolved at the Bombay High

Court. Stating that IRDAs head office was in Hyderabad, the attorney general said the issue

of jurisdiction has to be settled by the SC and that it could be heard by the SC or any high

court. The dispute started after SEBI banned 14 life insurers, including those belonging to

SBI and Anil Ambani Group from raising further money through ULIPs without registration

with the market regulator. The finance ministry was forced to intervene after IRDA asked

insurance companies to simply ignore the SEBI order. The ministry asked them to jointly

seek a legally binding order from an "appropriate" court over jurisdiction. Following the

ministrys intervention, SEBI allowed insurers to raise money from existing ULIPs, but asked

them not to issue fresh ULIPs after April 9, the date when it issued the order banning 14 life

insurance companies from raising funds through ULIPs.

2. REGULATORS SQUABBLE OVER JURISDICTION15:

Gold Traded Fund : FMC v. SEBI

15 http://businesstoday.intoday.in/story/regulators-squabble-over-jurisdiction/1/8747.html

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While the much-hyped tug of war over Ulips between market regulator Sebi (Securities and

Exchange Board of India) and insurance regulator Irda (Insurance Regulatory and

Development Authority) has ended up at the Supreme Court, more tussles involving other

regulators are coming to light. One such face-off was avoided recently after the NSE decided

not to launch derivatives on gold exchange-traded funds (ETFs). The launch was postponed

after the Forward Markets Commission (FMC), regulatory body for commodities trades, said

that the regulation of such products was under its purview, not Sebi's. Earlier, the NSE had

taken permission from Sebi to launch futures and options products with gold ETFs as the

underlying asset.

The commodities regulator is also fighting a court battle with the Central Electricity

Regulatory Commission (CERC) after the latter refused futures trading in power. The dispute

started over a year ago, when CERC stayed the plans by the Multi Commodity Exchange

(MCX) to introduce trading in power futures. The power regulator argued that the MCX

would have to approach it, rather than the FMC, to launch the product. However, CERC is in

no mood to allow the launch as it fears the speculators will distort the prices in a market that

is facing short supply. FMC cited the Forward Contract (Regulation) Act of 1952, which

gives it power to regulate all futures contracts. Market observers believe that more regulatory

disputes may be brewing and are likely to come out in the open soon. For instance, the

original Insurance Act allows for pensions under insurance, which is regulated by Irda.

However, the category has its own regulator, the Pension Fund Regulatory and Development

Authority. Similarly, the Competition Commission of India (CCI) can regulate competition

issues across sectors. However, various sectors are subject to specific regulatory control and

sector regulators, such as Sebi, RBI, Trai (Telecom Regulatory Authority of India) and Irda,

have the mandate to regulate competition in their spheres. For instance, there is high tension

between the RBI and CCI over the merger of banks. While the CCI seeks to control mergers

across sectors, including banking, the RBI is unwilling to share its turf with CCI.

3. SEBI v. RBI (Central Bank against changes in Securities Law)16

There is a turf war brewing between central bank Reserve Bank of India (RBI) and market

regulator Securities and Exchange Board of India (SEBI). The RBI is not in favour of

changes to the securities law, which gives SEBI control over all market-traded instruments

16 http://www.moneycontrol.com/news/cnbc-tv18-comments/rbi-vs-sebi-central-bank-against-changessecurities-law_409530.html

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including currency derivatives. The proposed amendments seek to redefine securities and

redefine them as any marketable instrument and this could mean any real product which

currently today is actually under the domain of the RBI for instance currency derivatives.

Thats one example, there could be many more. Only fixed deposits (FDs) and insurance

policies are sought to be kept out of it, every other product which is marketable instrument

and is traded, should be under the purview of the SEBI. That is what is being proposed. The

other point which is very significant again is that the regulator wants to redefine a stock

exchange. Currently, it has to be a corporate body and the regulator has specifically

mentioned the negotiated dealing system where government securities are traded because it is

not a corporate body even though it is a market place, it is not considered a stock exchange.

Now, the proposed amendments seek to bring the negotiated dealing system (NDS) or any

place on which any trading happens or any market place that is created out of any

arrangement to be treated as a stock exchange. Which means that also gets regulated by the

SEBI. The third point is that the regulator also wants all clearing corporations. Now, the stock

exchange clearing corporations are already regulated by the SEBI, but there is the Clearing

Corporation of India which caters to debt instruments which is outside the purview of the

regulator.

Now, the proposed amendment also seeks to bring that within the SEBIs purview. What we

understand is that the RBI opposed these proposals in the SEBI board meeting a RBI Deputy

Governor is on the SEBI board when this board meeting happened on June 18, there was an

objection which was raised and therefore in the minutes of the SEBI board meeting it says

that while the board has approved these changes, it would like the government really to

consult RBI and come to a conclusion on whether these changes need to be brought in.

Round one has gone to the RBI and has succeeded in convincing the SEBI board that this

should not go through right now.

4. Stock market: SEBI v. MCA v. Stock Exchange

Even in case of securities market SEBI, MCA and Stock Exchange together share jurisdiction

over securities market. Currently there is no mechanism for settling class action/ appeals. It is

found that there is a clash of functions between SEBI and MCA.

NEED TO HAVE SUPER REGULATOR:

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All the regulators are expertise in their sector and have the exclusive jurisdiction over their

sector. One regulator cannot interfere in the working of the other regulator. Since the

financial market has developed in the recent past, the jurisdiction of these regulators may

overlap and the regulators end up in squabbling over jurisdiction. In order to overcome this,

we need to have a super regulator to supervise and interfere in all the disputes between the

existing regulators. An analogy can be drawn from the present judicial system where the

Supreme Court is the apex court which looks after the jurisdiction issues between different

high courts of the states.

The following are the points which support the need to have super regulator:

1. Fragmented supervision may raise concerns about the ability of the financial sector

supervisors to form an overall risk assessment of the institution, operating domestically and

often internationally, on a consolidated basis, as well as their ability to ensure that

supervision is seamless and free of gaps. There are also group-wide risks that may not be

adequately addressed by specialist regulators.

As the lines of demarcation between products and institutions have blur, different

regulators could set different regulations for the same activity for different players. Unified

supervision could thus help achieve competitive neutrality.

The unified approach allows for the development of regulatory arrangements that are more

flexible. Whereas the effectiveness of a system of separate agencies can be impeded by turf

wars or a desire to pass the buck or where respective enabling statutes leave doubts about

their jurisdiction, these problems can be more easily limited and controlled in a unified

organisation.

Unified supervision could generate economies of scale as a larger organization permits

finer specialization of labour and a more intensive utilization of inputs and unification may

permit cost savings on the basis of shared infrastructure, administration, and support systems.

Unification may also permit the acquisition of information technologies, which become cost-

effective only beyond a certain scale of operations and can avoid wasteful duplication of

research and information-gathering efforts.

A final argument in favour of unification is that it improves the accountability of

regulation. Under a system of multiple regulatory agencies, it may be more difficult to hold

regulators to account for their performance against their statutory objectives, for the costs of

regulation, for their disciplinary policies, and for regulatory failures.

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CHALLENGES FOR A SUPER REGULATOR:

Hiring manpower for the unified regulation is a biggest challenge.17 The financial market is

regulated by various regulators who are expert in their own field so when a single regulator is

created it is practically impossible to have one regulator with all the expertise.

Other challenges include:

1. Given the diversity of objectives ranging from guarding against systemic risk to

protecting the individual consumer from fraud it is possible that a single regulator might not

have a clear focus on the objectives and rationale of regulation and might not be able to

adequately differentiate between different types of institutions.

2. A single unified regulator may also suffer from some diseconomies of scale. One source of

inefficiency could arise because a unified agency is effectively a regulatory monopoly, which

may give rise to the type of inefficiencies usually associated with monopolies. A particular

concern about a monopoly regulator is that its functions could be more rigid and bureaucratic

than these separate specialised agencies. It is argued that another source of diseconomies of

scale is the tendency for unified agencies to be assigned an ever-increasing range of

functions; sometimes called Christmas-tree effect.

3. Some critics argue that the synergy gains from unification will not be very large, i.e.,

economies of scope are likely to be much less significant than economies of scale. The

cultures, focus, and skills of the various supervisors vary markedly. For example, it has been

argued that the sources of risks at banks are on the asset side, while most of the risks at

insurance companies are on the liability side.

4. The public could tend to assume that all creditors of institutions supervised by a given

supervisor will receive equal protection generating moral hazard. Hence depositors and

perhaps other creditors of all other financial institutions supervised by the same regulatory

authority may expect to be treated in an equivalent manner.

5. Another serious disadvantage of a decision to create a unified supervisory agency can be

the unpredictability of the change process itself. The first risk is that opening the issue for

discussion will set in place a chain of events that will lead to the creation of a unified agency,

whether or not it is appropriate to create. The second risk is legislation in that the creation of

a unified agency will generally require new legislation, but this creates the possibility that the

17 http://www.moneycontrol.com/news/cnbc-tv18-comments/fslrc-chairman-highlights-challenges-for-super-regulator_898593.html

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process will be exploited by special interests. The third risk is a possible reduction in

regulating capacity through the loss of key personnel. Another risk is that the management

process itself will go off track.

CONCEPT OF SUPER REGULATOR IN OTHER COUNTRIES:

In major markets around the world there has been a growing trend towards unification of

responsibility for the regulation of banks, securities markets and insurance companies.

Countries where unified agencies have recently assumed regulatory responsibilities for all

financial institutions include the UK, Japan and Korea. In May 2002 Germany established a

single financial regulator. Ireland and Switzerland are other European countries that are in the

process of moving towards the single regulator model18. The increasing popularity of the

single regulator model in Europe should be viewed against the background of the policy

objectives of the European Union regarding the establishment of a fully integrated financial

market. The convergence of national regulatory structures of member states in a way that

brings them closer to each other has been identified as a necessary step for the achievement

of that goal.

Scandinavian countries led the way in establishing unitary financial regulators. Norway was

the first country to establish an integrated regulatory agency in 1986 followed by Denmark in

1988 and Sweden in 1991. However, as the first major international financial centre to adopt

the single regulator model, the UK changes have attracted particular international attention.19

For countries that are major financial centres, an important argument in favour of the single

regulator model is that it matches the nature of their markets, in that the emergence of

financial supermarkets and increasing use of sophisticated techniques such as securitisation

and derivatives trading have broken down the traditional sectorial distinctions. The trend

towards increasing blurring of sectorial boundaries intensified during the 1990s. The timing

of the UKs overhaul of its regulatory structure thus largely coincided with the period when

questions about the need for changes to national regulatory arrangements in order to keep

pace with the markets were becoming an issue for public policy debate in many countries.

18 http://www.law.yale.edu/documents/pdf/cbl/2-4Panel2Ferransingleregulator.pdf 19 http://www.worldlii.org/int/journals/lsn/abstracts/346120.html

19

As well as responding to trends in the international financial markets, changes to national

financial regulatory structures are usually also driven by country-specific factors. This is

certainly true so far as the UK is concerned where some of the impetus for change came from

local factors involving financial scandals and collapses that were attributed, in part, to

failings in the old system. Around the world there is wide variety in the existing institutional

arrangements and, despite the current interest in the single regulator model, its adoption in

practice remains relatively rare.

THE BACKGROUND TO THE ADOPTION OF THE SINGLE REGULATOR

MODEL IN THE UK:

This historical survey begins in the 1980s, which was a period of regulatory upheaval in the

UK. At that time the UK had a fragmented regulatory structure, with different institutional

arrangements and legal regimes in place for banking, securities and insurance business. The

survey examines key events in the period up to May 1997. It was in May 1997 that a new

Labour government was elected in place of the Conservative government which had been in

power since 1979. In the days immediately following the election in May 1997 the new

government moved with remarkable swiftness to start the process of switching to the single

regulator model. This was one of its first major policy initiatives.

Banking regulation

In the 1980s regulatory responsibility for the UK banking sector lay with the central bank, the

Bank of England. Although the Bank of Englands informal involvement in the supervision

of banks dates back to the mid-nineteenth century, it was only in 1979 that it acquired formal

powers to grant or refuse authorisation to carry on a banking business in the UK. Catalysts

for the changes made by the Banking Act 1979 were the secondary banking crisis of 1973-4

and the Banking Co-ordination Directive of 1977 which was the first major step towards

European harmonisation in this sector. Banking failures continued to influence change

throughout the following years. The collapse of Johnson Matthey Bankers Ltd in 1984

exposed defects in the framework established by the 1979 Act. As a consequence, that

structure was replaced in 1987 by a new legislative framework. The Banking Act 1987

confirmed the Bank of England in its role as bank regulator but strengthened its supervisory

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powers. The Act introduced a new Board of Banking Supervision to assist the Bank in its

supervisory functions.

Another bank failure, The Bank of Credit and Commerce International (BCCI), in 1991 again

put the UK banking regulatory framework under scrutiny. Although international supervisory

action co-ordinated by the Bank of England had brought about BCCIs closure in 1991, the

Bank was heavily criticised for not intervening sooner to stop BCCIs fraudulent operations.

An official inquiry was set up, chaired by Lord Justice Bingham. The inquiry found

weaknesses in the Banks techniques of supervision which were found to be too heavily

reliant on informal methods based on trust and frankness to cope with sophisticated fraud. It

also identified gaps in the Banks powers. In response, certain technical changes were made

to the Banking Act 1987 as well as changes to the Bank of Englands supervisory practices.

On the more radical question whether a reorganisation of regulatory responsibility was

required - the inquiry produced a negative response. The option of transferring banking

regulatory responsibility from the central bank to an independent body was specifically

rejected. The inquiry found nothing in the history of BCCI to invalidate the judgment made

prior to the Banking Act 1987 to continue to entrust this task to the central bank.

The spectacular collapse of Barings in 1995 prompted another official inquiry in the UK, this

time by the Board of Banking Supervision. The Barings crisis had been triggered by massive

unauthorised losses incurred by a single derivatives trader employed by the Singaporean arm

of the Barings group. The official inquiry found that the main reasons for the collapse of

Barings were management failings within Barings and lack of appropriate internal controls.

But it also found some failings in the Bank of Englands performance as the lead supervisor

of the Barings group. Like the previous BCCI collapse, Barings provided a graphic

illustration of the difficult challenges faced by national regulators in attempting to supervise

complex multinational banking groups. It also illustrated the need within a fragmented

regulatory system for close contact and co-operation between banking and securities

regulators in order to achieve effective supervision of financial supermarkets whose

businesses straddled the fuzzy boundaries between those sectors.

At the same time as bank failures were reflecting badly on the Bank of England in its

regulatory role, a growing consensus was emerging amongst politicians and economists in

favour of giving the central bank monetary policy independence. Central bank independence

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is regarded as a practical consequence of new economic orthodoxy in which monetary policy

is the main instrument for delivering price stability.

The connection between monetary policy independence and the location of regulatory

responsibility for the banking sector is that if the two functions are combined regulatory

concerns may create conflicts of interest that undermine policy independence. Following

Good hart and Schoenmaker, Taylor gives the example of a central bank not wanting to

adjust interest rates if to do so might trigger a number of bank failures for which it could be

blamed. Separating the monetary policy and regulatory roles would remove this conflict and

leave the central bank to determine t monetary policy free from extraneous influences. But

the arguments for and against separation of functions are finely balanced: arguments against

separation include the central banks role as lender of last resort, its oversight function in

relation to the payment system, the need for consistency between monetary policy and

banking supervision and synergy advantages in concentration of functions. What this debate

indicates is that a central bank will inevitably have a continuing involvement in some aspects

of the regulatory process because of its role in ensuring financial stability and, further, that

the demarcation of its responsibilities and those of any other body that assumes a banking

supervisory role is an issue that must be specifically addressed. So far as banking regulation

was concerned, practical events and the evolution of the public policy economic agenda in

the 1980s and early 1990s thus provided various reasons for considering change.

Alongside these factors it should also be noted that UK banking law and regulation was

significantly amended during this period in order to implement various new EC measures.

These changes, though very significant in their own right in that they removed internal

barriers to the free operation of banking activities throughout the European Union, did not

have a major direct impact on the institutional framework of regulation and so they, and

equivalent measures in securities and insurance law, do not require detailed examination

here.28 Their immediate relevance to the present discussion is that piecemeal changes to

existing legislation and the addition of extra layers of regulation, as took place in the 1980s

and 1990s to implement European measures, added to the complexity of the framework and

to compliance costs. A further advantage of a fundamental root and branch reform was that it

would provide an opportunity for a thorough principled assessment of how best to combine

domestic and European requirements in a coherent overall framework.

Securities regulation

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Paralleling banking regulation, the history of UK securities regulation in the 1980s and early

1990s is the story of a system that was undermined by financial scandals that badly affected

consumer confidence. It was also a complex system that exacerbated the problems involved

in ensuring effective supervision of multi-function firms. The excessively fragmented

institutional infrastructure for the regulation of the securities industry meant that firms were

often regulated by more than one regulatory agency with the consequence that the system was

heavily dependent on the quality and effectiveness of communications and co-operation

between the regulators. There was strong industry dissatisfaction with the system. The

presence of multiple regulators was a source of uncertainties about boundaries and created

inefficiencies. From its inception, the regulatory regime was the target of persistent criticism.

It was seen to be unwieldy and bureaucratic. The extremely detailed, legalistic style of early

versions of regulatory rulebooks did little to enhance the reputation of those responsible for

the regime. When even the head regulator acknowledged in 1993 that many of the criticisms

were justified, it became indisputable that the UKs defective system for the regulation of its

securities industry was in dire need of reform.

The source of the problems was the institutional structure established under the Financial

Services Act 1986. Under the Act, ultimate regulatory responsibility for the financial services

industry lay with a government department but most regulatory powers were delegated to the

Securities and Investments Board (SIB), a private company limited by guarantee financed by

a levy on market participants. The SIB set the overall framework of regulation but did not

itself act as the direct regulator of most investment firms. That function was performed by the

second tier regulators, of whom the Self Regulating Organisations (SROs) were the most

prominent group. SROs were funded and partly managed by investment firms. For this reason

the style of regulation established by the Financial Services Act 1986 was sometimes

described as self regulation within a statutory framework. Underlying the emphasis on self

regulation in this description was a political compromise designed to assuage the concerns of

market participants as Professor Gower, whose studies of UK securities regulation in the

1980s powerfully influenced the character of the regime, had noted the intellectually-

appealing full statutory model could not be pursued at that time because it would have been

unacceptable in prevailing market conditions. The extent to which the system established

under the Financial Services Act 1986 really retained a self regulatory character in practice is

debatable but that it was presented in this way soon had unfortunate repercussions in that

many observers latched onto the self regulatory dimension as a key reason why the regime

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failed to succeed. But, whilst growing mistrust of self regulation undoubtedly played a part in

the events that unfolded over the following years, the more potent seeds of the regimes

destruction lay in the complex two tier structure and in the fragmentation at the SRO level.

At the outset there were five SROs but by 1994 the number had reduced to three: the

Securities and Futures Authority (SFA), the Investment Managers Regulatory Organisation

(IMRO) and the Personal Investment Authority (PIA). Some of the many changes to the

institutional arrangements at the second tier, SRO, level can be seen in a positive light, as

being the dynamic response of a flexible and market-sensitive system to developments in the

industry. But it is also the case that much of the change was driven by dissatisfaction about

overlaps and possible gaps in the areas of responsibilities of the original SROs. There were

persistent concerns about the effectiveness of the SROs efforts to prevent fraud and

misconduct. The SROs attracted severe criticism for having failed to protect the interests of

consumers in a number of high-profile financial scandals, including the Maxwell affair where

IMROs failure to detect the theft of company pension fund assets by its controller, Robert

Maxwell, was the target of particular complaint. Another notorious problem that damaged the

reputation of the regulatory agencies in the early 1990s was that of pensions mis -selling,

which involved the selling of inappropriate, pension investment products to investors. Black

and Nobles describe the pensions mis -selling episode as a manifestation of a critical failing

in the regulatory structure involving regulatory blindness, lack of awareness and lack of

communication and co-operation between the different regulators.

In a personal assessment published after the Maxwell affair the then Chairman of the SIB,

Andrew Large, identified a number of problems that were thought to afflict the regime he

headed: lack of clarity about regulatory objectives; lack of confidence that self regulation was

anything other than self interest; doubts about cost-effectiveness; and a feeling that fraud was

going undetected. Larges acknowledgement that many of these criticisms were justified set

the agenda for policy discussions and political debate in the following years. By the end of

1995 it was clearly articulated Labour Party (then in opposition) policy to remove the last

remnants of self regulation and the unnecessary distinction between the SIB and the

SROs. It seems likely that a Conservative government would have gone down the same route

if it had remained in power. There was no indication at this stage, however, of quite how

radical the incoming Labour government would be. The case for a single regulator for the

whole of the financial sector was not yet figuring prominently in the discussions.

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Insurance

The regulation of the insurance industry in the 1980s and 1990s was a complex affair but,

except in relation to the Lloyds insurance market where there were particular problems, it

attracted little attention from policymakers. The prudential regulation and authorisation of

insurance companies were the responsibility of a government department under the Insurance

Companies Act 1982. Long term insurance policies were treated as investments for the

purposes of the Financial Services Act 1986 with the result that these aspects of insurance

companies business also fell within the scope of the regulatory regime established under that

Act. Insurance brokers were also subject to another form of self regulation within a statutory

framework operated by a body known as the Insurance Brokers Registration Council. By the

1990s the continuance of this degree of self regulation was regarded as anomalous. The

Lloyds insurance market had a special status under the Insurance Companies Act 1982 and

exemption under the Financial Services Act 1986. Problems at Lloyds in the early 1990s

resulting from disastrous losses put its special regulatory status under scrutiny. Some

observers suggested that by not being within the scope of the Financial Services Act 1986

Lloyds lost out on access to the latest standards and methods of regulation and that, if it had

been better regulated, the impact of the losses might have been less severe. An internal

review published in early 1997 recommended that Lloyds should be brought within the

regulatory jurisdiction of the SIB. The proposal was soon swept up into the radical new

approach to financial regulation announced by the new government in May 1997.

All Change

The new Labour government was elected on 1 May 1997. On 6 May 1997 the Chancellor of

the Exchequer, Gordon Brown, announced that he was giving monetary policy independence

to the Bank of England. This was followed on 20 May by a further announcement from the

Chancellor in which he announced the transfer of responsibility for banking regulation and

supervision from the Bank of England to the SIB and also reform of the regulatory structure

introduced by the Financial Services Act 1986.

According to the Chancellor:

SIB will become the single regulator underpinned by statute. The current system of self

regulation will be replaced by a new and fully statutory system, which will put the public

interest first, and increase public confidence in the system.

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The instigation of regulatory reform in itself was no surprise but that it took the form of a

switch to a single regulator was unexpected and politically contentious, not least because the

Go vernor of the Bank of England had not been consulted about the proposals to strip the

Bank of its regulatory role. Previous statements from Labour Party spokesmen had suggested

more modest incremental change concentrating, in particular, on the dismantling of the two

tier structure under the Financial Services Act 1986. According to the Chancellors statement

there were three key reasons for the new approach: the existing system was failing to deliver

the standards of investor protection and supervision that the industry and the public had the

right to expect; the two tier structure under the 1986 Act was inefficient, confusing and

lacked accountability and a clear allocation of responsibilities; and the need for a regulatory

structure that would reflect the nature of the markets where the old distinctions between

banks, securities firms and insurance companies had become increasingly blurred. The first

two reasons were predictable given the local historical record. The third reason had not

previously enjoyed the same degree of prominence.

Although matching the nature of the national regulator to the nature of the markets is now the

familiar centrepiece of discussions about the institutional framework of regulation, in the

political debates on financial regulation in the UK in the 1990s it was not an issue that had

attracted particular attention.

So why was the single market /single regulator argument raised to such a prominent position

by the British Chancellor? The full answer to this question may well not be known until

current political figures publish their retirement memoirs or until confidential political

records are finally released but one plausible theory has been put forward by Mark Bolat

who was the then Director-General of the Association of British Insurers. He suggests that

the decision to opt for a single regulator was driven more by pragmatic considerations

relating to pressures on the parliamentary timetable than by principle:

The Treasury team had failed to secure in the first Queens Speech legislation to abolish the

two tier system under the Financial Services and Markets Act. However, a separate decision

had been taken to give the Bank of England independence in respect of conducting monetary

policy and this did require legislation. It seems that an opportunist decision was taken at this

stage to move towards a single regulator because the legislation to give the Bank of England

independence in respect of monetary policy could be used for any other purpose relevant to

the Bank of England.

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The first stage in the reform process was the renaming of the SIB as the Financial Services

Authority (FSA) in October 1997. Thereafter most of the existing regulatory agencies

collapsed themselves into the FSA structure on a largely informal and ad hoc basis. In effect

the FSA assumed the de facto role of single regulator. The process of vesting full powers in

the FSA as single regulator began in July 1998 with the publication of the Financial Services

and Markets Bill in draft form.

Super regulator in European Union:

EU finance ministers agreed a new pan-European system of market regulation to tame

excesses and take pre-emptive action to head off the kind of financial meltdown of the past

18 months.20 In Austria, a government department watches over the markets, a task that the

Irish leave to their central bank. The French have two main regulators for their markets while

the Germans have three. The British set a brand new example last year when they introduced

a single all-powerful regulator, the Financial Services Authority (FSA), to watch over all

their financial markets. And in February, an influential EU group of wise men, headed by

Alexandre Lamfalussy, a former chairman of the EMI, forerunner of the European Central

Bank, endorsed the British model and recommended a single national regulator for

each EU country. That led some to wonder whether what's good for Britain might be good for

Europe too. Would the EU benefit from having a single super-regulator?

The French too are talking about merging their regulators. France's main supervisory

authority is the Commission des Oprations de Bourse (COB), but it shares responsibility

with two other bodies: the Conseil des Marchs Financiers, a self-regulatory organisation that

oversees market transactions, and the Commission Bancaire, the watchdog for the banking

industry.21

The French government is a strong proponent of the so-called twin heads model of

regulationhaving one regulator for prudential supervision and wholesale business (the

markets for financial products between professionals), and one for the retail markets, where

financial products are sold to consumers. The head of the COB, Michel Prada, says that two

separate regulatory bodies are preferable to one for two main reasons. In the first place, they

reduce the risk of the retail market regulator being contaminated by its wholesale

20 http://www.theguardian.com/business/2009/dec/02/eu-financial-regulation-deal 21 http://www.economist.com/node/518194

27

counterpart, and vice versa. And, secondly, they reduce the huge management burden that is

imposed on a single regulator.

Setting up a feeble Forum of European Securities Commissions (FESCO) in 1997 to promote

co-operation among securities regulators. FESCO's work has been inconsequential though,

largely because it does not have any official status. It is further handicapped by being obliged

to work by consensus, and by being unable to make recommendations that are binding.

In the aftermath of the launch of the euro, Europe's leaders decided to take more robust action

to tackle other financial markets. They endorsed the European Commission's Financial

Services Action Plan (FSAP) at their Lisbon summit in March 2000, a blueprint for

integrated capital and financial-services markets across the EU.

Failure of FSA in UK

The FSA rarely took on wider implication cases. For example, thousands of consumers have

complained to the Financial Ombudsman Service about payment protection insurance (PPI)

and bank charges. The FSA in an internal report into the handling of the collapse in

confidence of customers of the Northern Rock Plc described themselves as inadequate. The

FSA ignored warning signals from Northern Rock building society and continued to allow

the bank to operate without a risk mitigation programme for months before the bank's

collapse. The FSA was criticised by some within the IFA community for increasing fees

charged to firms and for the perceived retroactive application of current standards to historic

business practices. The perceived lack of action by the FSA in many cases, and allegations

of regulatory capture led to it being nicknamed the Fundamentally Supine

Authority by Private Eye magazine.

The FSA was not legally able to circumvent statute yet hid behind secret legal opinion

regarding its summary removal of practitioners' legal rights in respect of their ability to use a

longstop defence against stale claims.

FSA regulation was also often regarded as reactive rather than proactive. In 2004-05 the FSA

was actively involved in crackdowns against financial advice firms who were involved in the

selling of split-cap investment trusts and precipice bonds, with some success in restoring

public confidence. However, despite heavily criticising split-cap investment trusts, in 2007 it

suddenly abandoned its investigation. Where it was rather poorer in its remit is in actively

identifying and investigating possible future issues of concern, and addressing them

28

accordingly. There were also some questions raised about the competence of FSA staff. The

composition of the FSA board appeared to consist mainly of representatives of the financial

services industry and career civil servants. There were no representatives of consumer

groups. As the FSA was created as a result of criticism of the self-regulating nature of the

financial services industry, having an independent authority staffed mainly by members of

the same industry could be perceived as not providing any further advantage to consumers.

Although one of the prime responsibilities of the FSA was to protect consumers, the FSA was

active in trying to ensure companies' anonymity when they were involved in misselling

activity, preferring to side with the companies that have been found guilty rather than

consumers.

The FSA countered that its move away from rules-based regulation towards more principles-

based regulation, far from weakening its consumer protection goals, could in fact strengthen

them: "Our Principles are rules. We can take enforcement action on the basis of them; we

have already done so; and we intend increasingly to do so where it is appropriate to do so.

The FSA was criticised for its supposedly weak enforcement program. For example,

while FSMA prohibits insider trading, the FSA only successfully prosecuted two insider

dealing cases, both involving defendants who did not contest the charges. Likewise, since

2001, the FSA only sought insider trading fines eight times against individuals and

companies it regulated, despite the FSA's own studies indicating that unexplained price

movements occurs prior to around 25 percent of all UK corporate merger announcements

CONCLUSION:

Establishing a super regulator in India will simply lead to an increase in the hierarchy of the

financial market regulatory system which is nothing more than a burden on the state in terms

of revenue since all the specific regulators have authority in their respective sectors to decide

and formulate the procedure in case of matters falling under their jurisdiction. As they are the

final authority to decide the matters which in case of conflict can be either decided by the

Central government or the Supreme Court, creating one more institution to decide the policy

matters or redressal mechanism is just an increase in procedural formalities which even after

that to be decided by the Supreme Court, even the matters to be decided by the unified or

super regulators are policy matters which can be scrutinized by the respective ministry.

29

India does not need super regulator for financial sector markets but need better co-ordination

among existing regulators. "At this particular time, it may be advisable to continue with

existing system, rationalise the overlap if there are any and try to improve the co-ordination

among different regulators.

We still have not reached a stage in which our various financial segments have developed to

full extent. The experience that is now available does not point to very clear evidence as to

which is better. UK had a single regulator and it ran into problems. USA had multiple

regulators and they also ran into problems.

We have not yet witnessed financial instruments of the kind witnessed by some countries.

Most of the products being offered by various intermediaries are stand alone and do not

combine features of bank deposits, insurance policies and investment. Banks direct

participation in the equity market is also very insignificant. Also, insurance companies are

not yet allowed to set up banks which would require legislative changes.

There are no significant regulatory overlaps, barring perhaps the case of cooperative banks.

Regulation in India is by and large on institutional lines and institutions essentially report to a

single regulator. One area of potential conflict could have been the regulation of the debt

market, but the Government has already issued a notification in March 2000 delineating

responsibilities between the RBI and SEBI.

Banking supervision has historically been done by the Reserve Bank and as a result, a large

volume of expertise has been built up in this area within the central bank. Besides, since ours

is a bank-based economy and banks are the conduit for carrying monetary policy impulses to

the real economy, it is necessary to keep bank supervision within the central bank.

Considering these facts, especially the given institutional settings in India, and the

disadvantages of unified structure as outlined above, it is felt that the existing arrangement of

supervision by separate agencies may continue. To take care of some overlaps, duplication

etc., however, there is a need to devise some formal mechanism among three major regulators

to exchange information and coordinate their activities. This could be achieved in a variety of

ways through micro-level and macro-level regulatory co-ordination.

*********

30

BIBLIOGRAPHY:

I. PRIMARY SOURCES

STATUTES:

RBI ACT, 1934

SEBI ACT, 1994

COMMITTEE REPORTS:

FSLRC REPORT AND RECOMMENDATIONS

II. SECONDARY SOURCES

WEB SOURCES:

http://www.moneycontrol.com/news/economy/fslrc-chairman-highlights-challenges-for-

super-regulator_898593.html

http://www.simplydecoded.com/2013/03/29/financial-sector-reforms-recomendations/

http://www.finmin.nic.in/fslrc/fslrc_report_vol1.pdf

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regulator-super-regulator-unified-regulator

http://economictimes.indiatimes.com/topic/Srikrishna-committee

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regulator-to-avoid-a-future-collapse-of-the-financial-system.html

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against-changessecurities-law_409530.html

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sector-mooted-113032200218_1.html

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31

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reforms-commission-2792/

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