Regulators can work together to minimise overlaps: RBI Deputy Governor

RBI Deputy Governor Swaminathan J said regulators should coordinate to reduce overlaps and close gaps without hindering innovation, calling for proportional and outcome-based regulation

Regulators can work together to minimise regulatory overlaps and close material gaps without affecting innovation, Reserve Bank of India (RBI) Deputy Governor Swaminathan J said on Friday while speaking at the Gatekeepers of Governance – Corporate Governance Summit.

 

“The real problem may, therefore, arise from conflicting rules, duplicated compliance, and uncoordinated enforcement, which is avoidable. At the same time, new activities, new technologies, and new business models can fall through internal cracks. So, we do agree, both regulatory overlaps and gaps exist,” Swaminathan said.

 

“The task for regulators is to work together, minimising harmful overlaps and closing material gaps, without choking innovation,” he added.

 

Swaminathan also mentioned rules for minimising regulatory gaps, which included a balancing of entity- and activity-based regulations by regulators. “Even if the provider is not a traditional individual, if two activities create the same risk, they should face the same rules, regardless of the label of the provider,” he said.

 

Second principle is proportionality, whereby regulators should scale requirements to risk and complexity. Thirdly, regulators must strive towards outcome-based regulation that focuses on desired end results, like consumer protection and market stability, rather than prescribing specific processes and rules.

 

“Output-based rules work best when solutions and enforcement are strong, and markets are mature. So, in conclusion, addressing regulatory gaps and overlaps is the journey of continuous improvement that demands constant reflection, adaptation, and courage to challenge the status quo,” Swaminathan said.

 

At the same time, he also said that some level of regulatory overlap is beneficial, as it provides layers of safety net, whereby if one control misses an issue, another one will catch it.

 

He further said that companies must internalise good governance in their everyday decisions and conduct. There are certain practices that matter the most — directors' vote is a diverse and independent vote that keeps the organisation on track by overseeing compliance, risk culture, and ethics. Secondly, independence should be in substance. “Independent directors should be able to challenge strategy, controls, financials, and risk,” he said.

 

Thirdly, looking through the group and not just the entity. According to Swaminathan, in large conglomerates, risk does not stop at the boundaries of individual independence. Votes should seek the whole and not just the parts.

 

Fourthly, protect and empower control functions — and analysis of governance gaps with real innovation — as it helps organisations see where their policies and frameworks stand against industry best practices, thereby spotting weaknesses, strengthening compliance, and improving risk management.