Regulators may come under more scrutiny

In a far reaching suggestion that will elicit support from the political class, an expert committee has called for the Parliament, through the finance ministry, to set a specific remit for financial sector regulators every five years.

Every year, the regulatory body should report to a standing committee of parliamentarians, preferably the one attached to the finance ministry, explaining the progress it has made on the remit.

The interaction should be made public, the draft report of the Committee on Financial Sector Reforms (CFSR), headed by Raghuram Rajan, professor, graduate school of business, University of Chicago, has said.

In addition, to ensure that there are more direct checks on the regulator in a system that is less rule-bound, the committee has also recommended that regulatory actions should be subject to appeal at a Financial Sector Appellate Tribunal, which will be set up along the lines of, and subsume, the existing Securities Appellate Tribunal.

In another suggestion, which found an echo in the recent Sixth Pay Commission report, the committee has said regulatory staff should be given higher remuneration, and should be drawn from the private sector. Reasonable precautions need to be put in place to avoid conflicts of interest, it has advised.

Stating that it is a bit premature to fully move towards a single regulator at the moment, the report has called for streamlining regulatory structures to avoid inconsistencies, gaps, overlap and arbitrage.

"Steps in this direction should include a reduction in the number of regulators, while strengthening regulatory structures to deal with large, complex and systemically important financial conglomerates on the one hand and consumers on the other."

In another significant recommendation, the report has said that supervision of all deposit taking institutions must come under the Reserve Bank of India. "Situations, where responsibility is shared, such as the State Registrar of Co-Operative Societies, should gradually cease," it said.

Crucially, the report calls for putting in place a system of reviewing annual reports filed with the Registrar of Companies. Accordingly, it has called for the Ministry of Corporate Affairs to review accounts of unlisted companies, while the Securities and Exchange Board of India should review accounts of the listed ones.

Suggesting the creation of a Financial Sector Oversight Agency (FSOA) by statute, the committee has said the body, comprising of chiefs of regulatory bodies, should monitor the functioning of large and systemically important financial conglomerates.

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ON THE AGENDA

Financial Development Council with finance minister as chairman to conduct macro-risk assessment

Setting up Office of the Financial Ombudsman (OFO), incorporating all such offices in existing regulators, to serve as household-industry interface

Strengthening capacity of Deposit Insurance and Credit Guarantee Corporation

Expediting process of creating unique national ID number with biometric identification

Speeding up reforms for land registration and titling

Formalising tenancy in contracts to serve as basis for borrowing

Extending powers of SRFAESI to all institutional lenders