FinMin presents road map for regulators to follow best global practices

Concerns mainly on regulatory governance and accountability of policy making

The finance ministry has prepared broad guidelines for all regulators to modify their operations in line with best global practices, according to the recommendation of the Financial Sector Legislative Reforms Commission (FSLRC).

Officials said the proposals have been sent to the Reserve Bank of India (RBI), Securities and Exchange Board of India (Sebi), Insurance Regulatory and Development Authority, Pension Fund Regulatory and Development Authority and the Forward Markets Commission. The ministry has urged these proposals to be vetted by the individual board of the respective regulators and be implemented at the earliest, said official sources.

One of the major recommendations is to bring in transparency in regulatory meetings. Contrary to the current practice of just floating a draft after the policy decision is through, the current mechanism envisaged will float a paper even before the decision is made. This is to elicit public response across stakeholders before the policy is made in principle. Explaining it, official sources said it would be like floating the idea at the beginning. Thereafter, at each stage, public opinion will be taken in any matter meant to become a mandatory provision for the public — be it guidelines, order, circulars, etc.

The idea is not to catch the public off guard on any policy decision unless it is sensitive for the market, they added. This proposal is even made for the monetary policy meetings of the RBI which have been kept completely out of the public domain. However, this may take time, said sources.

Secondly, such disclosures have been also suggested for customers of a financial service so that their views are taken prior to a decision on a policy being made. According to officials, such recommendations have been made in areas of regulatory governance, transparency and improving operational efficiency aimed at  customer satisfaction. To this effect, based on the broad guidelines of the ministry, all financial regulators including the Forward Markets Commission have been asked to finalise an action plan.

Such directions have been given to impose accountability on the regulators. According to  FSLRC recommendation, the Commission has adopted five pathways to accountability. First, the processes that the regulator must adhere to have been written in considerable detail in the draft code.  

Second, the regulation-making process (where Parliament has delegated lawmaking power to regulators) has been established in the draft code with elaborate checks and balances.

Third, systems of supervision have been established in the draft code with emphasis on the rule of law. Fourth, strong reporting mechanisms have been established in the draft code so as to achieve accountability.

Finally, a mechanism for judicial review has been established for all actions of regulators through specialised tribunals.

GUIDELINES FOR GUARDIANS

* Proposal sent to RBI, Sebi, Irda, PFRDA and FMC by the finance ministry to modify their operations in sync with FSLRC recommendations

* Ministry has urged proposals to be vetted by the individual board of the respective regulators and implement them at the earliest

* Recommends floating of paper before decision is made to elicit public response across stakeholders

* At each stage, public opinion to be taken into account in any matter meant to become a mandatory provision for the public

* Recommendations made in areas of regulatory governance, transparency and improvement of operational efficiency aiming at customer satisfaction