When I was a kid, we had a pet dog named Tiger. Tiger’s favourite pastime was chasing terrified cyclists. One day, Tiger aimed high – he chased a truck. He even caught up with the four-wheeler. But, soon he realised the truck driver was too high for him and gave up.
An approach paper by the Srikrishna-led Financial Sector Legislative Reforms Commission (FSLRC) recommends merging of Sebi, FMC, Irda and PFRDA as one of the ways to improve consumer protection and cut regulatory arbitrage. Unfortunately, the paper does not give a solution to a peculiar Indian problem, which might turn a recurring one as government policy pushes organised finance to go to tier-II and tier-III towns. How are you going to protect a consumer if you don’t speak his language, if you do not stay close to him?
Whatever their other synergies are, all these financial sector regulators are conspicuous by their absence in the smaller centres, which have grown their economies significantly.
Irda is based out of Hyderabad and has an office at Delhi. In Mumbai, the largest market for all financial products, including insurance, it does not even have an office, according to its website. There are insurance ombudsmen in some 12 centres across the country who will essentially do post-mortems.
PFRDA is still in a nascent stage. FMC, though older, is toothless in its present form. If FCRA is passed, maybe it can gain fangs but still not much is heard of it outside Mumbai.
RBI and Sebi are the most advanced. They have developed IT–enabled surveillance mechanisms and reporting structures to effectively monitor technologically advanced operations in banking and markets. But they also have a limited physical presence.
The MCA is the most geographically widespread, with 22 offices covering most of the states (some states even have two registrar offices). But its oversight capabilities are suspect as public limited companies have become the favourite vehicles to transfer political payments, launder money and fool depositors.
Wouldn’t it have made more sense for the FSLRC to add the network of registrars under MCA to that unified regulator proposal? Though an outright merger may not be feasible given the statutory role played by the registrar under the Companies Act, at least a seamless sharing of information and intelligence should have been institutionalised. Probably, being a body set up by the finance ministry it decided against stepping into the turf of another ministry.
But should these turf issues prevent the government from looking at the larger picture?
How do you handle a hinterland-based entity which throws truck loads of paper challenging you to go through it and tally millions of accounts manually? How do you regulate thousands of joint stock companies which have not yet moved to computers? If you don’t have the manpower to raid offices, impound records, how would you prevent fraud and protect consumers?
Should the financial sector regulators expand their size and reach in line with the regulated entities who are all talking tier-II and tier-III or should they tie up with local governments and police for intelligence and action? Unless one of the two is done regulators will do no better than ‘our’ beloved Tiger.