It expects student to write about the role played by different market regulators to ensure fairness and equity in the market. It also expects student to write about how their(Regulators) roles can be improved with respect to new emerging challenges.
Introduction:
In India, the different markets are regulated with the help of independent regulators, associated with the field of insurance, banking, commodity market, and capital market and also the field of pension funds.
Body:
Post 1990, Privatisation saw the advent of the ‘Indian Regulator’ that became the ‘nurturer’ and ‘parent’ of its sector. Over a period of time, a number of regulatory bodies, ranging from RBI, SEBI, IRDA, PFRDA to TRAI, electricity regulators, CCI, FDA have been set up in India.
Ensuring fairness and equity:
Regulators have been empowered to set the policy agenda, outline regulations, punish non-compliance and garner resources to manage their affairs. e.g. Prompt Corrective Action plan of RBI
Control Fraud: Market regulators put systems in place to prevent fraud as financial customers aren’t always sophisticated enough to do so themselves. e.g. Time to time guidelines given by RBI to ensure fairness in Banking Sector.
Promote Fairness: Regulators aim to reduce profits that insiders could extract from the markets. Laws against insider trading, for instance, help to level the playing field. e.g. In India, SEBI under the “SEBI (Insider Trading) Regulation, 1992” intends to curb and prevent the menace of insider trading in securities.
Set Mutually Beneficial Standards: Regulators help analysts to easily compare companies by requiring compliance with accounting standards set by them. e.g. In India it is done by The Institute of Chartered Accountants of India (ICAI). So, here ICAI ensures fairness and equity by maintaining transparency for every player in market.
Prevent Excessive Risk: Regulators require financial firms to maintain minimum levels of capital so that the firms honour their commitments and ensures firm’s owners have some “skin in the game.”
e.g. The CRR and SLR standard set by RBI for Nationalised banks and Private
banks.
Ensure Liabilities are Funded: Regulators watch over insurance companies and pension funds to ensure adequate reserves are maintained to cover liabilities because managers of these entities tend to underestimate long-term liabilities especially when there is an incentive not to do so.
e.g. Time to time circulars issued by IRDAI and PFRDA in this regard.
In this COVID-19 crisis when big insurance companies were offering COVID-19 insurance, which in turn gave a tough competition to small insurance companies. Here, IRDAI intervened & mandated all general and health insurers to offer to have a COVID-19 specific product, addressing basic health insurance needs of insuring public related to the pandemic and have a standard product with common policy wordings across the industry. It ensured fairness and equity.
Hindrances to ensure fairness and equity:
Politicisation in Regulatory bodies – As economic agents inherently intend to maximise profits, market misconduct happens in every domain. Policy makers go overdrive and frame restrictive policies and denounce regulators.
Non- experts to lead: The selection of non-experts to lead the regulatory bodies may bring lack of efficiency in the functioning of such bodies. Recently, this issue was raised when the former Finance secretary was appointed as RBI chairman.
Many regulatory bodies causes overlapping of powers, Recent Controversy between SEBI and IRDAI over Unit Linked Insurance Policy.
Way forward for more effective regulatory regime:
Appointment of persons to head regulatory organisations should be attempted in a far more transparent manner. Which in turn ensure no interference of any political nature.
“Regulatory Impact Assessments” are adopted by OECD countries to assess the performance of regulatory bodies. India can also mandate such techniques through legislation and thereby preserve economic value.
Financial sector legislative reforms commission(FSLRC) recommended to merge those regulatory bodies whose functions overlap. A multiplicity of regulatory agencies has created scope for regulatory arbitrage, apart from making it difficult to protect consumer interest. It will help to improve the quality of regulations by simplifying regulatory process. e.g. Merging of SEBI,PFRDA & IRDA is recommended by FSLRC.
Conclusion:
Regulatory bodies have played a very crucial role in post liberalization era to have a level playing field and thereby contributed in the sector specific growth by ensuring fairness and equity. But, over the period of time new challenges emerged. Hence, to tackle these challenges regulatory bodies need to be empowered to ensure fairness and equity in different markets.
