Millennium Post

New law must to plug financial sector regulatory gaps: FM

Amid the outcry over Ponzi schemes causing huge losses to the common man, Finance Minister P Chidambaram said on Wednesday that there are regulatory gaps and efforts are being made to frame a new law to oversee the financial sector.

'The present arrangements have a number of gap areas, where no regulators are unambiguously in charge, such as issue of regulatory oversight over diverse Ponzi schemes that we have discovered recently. These are cleverly designed to be out of the purview of regulatory agencies,' he said.

The Minister was speaking at a seminar on the 'Indian Financial Code' (IFC), which was framed by Financial Sector Legislative Reforms Commission (FSLRC) with a view to update the laws and regulations dealing with the sector. The seminar was organised by The Institute of Company Secretaries of India (ICSI).

The present financial architecture, the Minister said, 'has evolved over the years with a sequence of piecemeal measures and piecemeal legislations responding to immediate pressures from time to time. It is not specifically comprehensively designed to meet some key objectives'.

The multiplicity of regulators create gaps, ambiguity and regulatory overlap due to lack of role clarity, he said, adding that 'this creates inefficiencies in addressing critical emerging issues in an increasing dynamic, complex and interconnected financial world'.

On the Financial Sector Legislative Reforms Commission's suggestion to enact an Indian Financial Code as an omnibus legislation to regulate financial sector, the Minister replied, 'I am not sure how much this law will go through in the same fashion when it finally goes to Parliament ... (but it) will be a major milestone in Indian financial sector reforms.'

The recent collapse of chit fund company Saradha in West Bengal, in which people have lost thousands of crores of rupees, has underlined the need for tightening regulatory mechanisms to deal with collective investment and Ponzi schemes.

Chidambaram said that unlike in the past, the implementation of the Financial Sector Legislative Reforms Commission's recommendations would require positive inputs from stakeholders.

'Passing legislation in India is not easy. It has become even more complex with coalitions and legitimisation of obstruction as a Parliamentary tactic. Nevertheless, we cannot give up.'

'We are duty-bound to the people of this country to put in place a financial regulatory system that will serve us well for the next 50 or more years,' he said, adding that the Companies Bill, which has been passed in the Lok Sabha, still awaits passage in the Rajya Sabha.

He said that the existing framework also contains overlap of laws and agencies under which conflicts occur. 'In recent times, we have had turf battles between regulators,' he pointed out.

In its report, the Financial Sector Legislative Reforms Commission had suggested that financial sector regulators such as the Securities and Exchange Board of India (Sebi) as well as Insurance Regulatory and Development Authority (Irda) be merged into a Unified Financial Agency (UFA) and the role of RBI be restricted to regulating banks and managing monetary policy.

'Alongside, very careful analysis of every sentence of the existing laws and every section of proposed code will need to be taken up before we agree upon large scale repeals of legislation. The requirements on this new arrangement will be understood and attempts made to adopt necessary changes,' he said.

Chidambaram said that many of the elements of the FSLRC-recommended legal processes are not unacceptable to the present laws.

'Therefore, I suggest the Ministry of Finance and the regulatory agencies may look seriously at operationalising some of these elements at the earliest even within the scope of the present laws,'
he said.
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