Second guessing regulatory decisions by tribunals will reduce regulators to paper tigers: Rajan

RBI governor has also slammed the idea of a establishing a super regulator calling it "schizophrenic"

GN Bureau | June 18, 2014



The idea of setting up a unified financial sector regulatory body by a high level committee may not find a keen supporter in Reserve Bank of India governor Raghuram Rajan who has called it “somewhat schizophrenic”. In addition, he has also slammed the proposal to open up all regulatory decisions to a judicial review saying that the move could reduce regulators to a “paper tiger”, rendering them ineffective.

The above mentioned ideas along with a few others were mooted by the financial sector legislative reforms commission (FSLRC) in its report submitted in 2012. The FSLRC, set up in 2011 to review the regulatory structure in the financial sector, had recommended the setting up of a ‘super regulator’ for regulating the capital markets, insurance, commodities futures trading and pension funds. In addition it has also proposed that this unified regulator will manage internal capital flows and regulate bonds, currencies and derivatives trading, thus restricting the apex bank to purely look after monetary policy and functioning of banks.

The committee’s idea of setting up a financial sector appellate tribunal to review regulatory decisions has also been discouraged by Rajan who feels that this may “undermine the very purpose of a regulator”. Rajan argues that the setting up of a tribunal would mean constant interference in the functioning of regulatory bodies and that “people (will) trust the tribunal’s judgment but not that of the regulator”.

According to Rajan, “...to the extent that private parties with their high-priced lawyers can check the regulator, that healthy respect dissipates. So the final danger is that the regulator could become a paper tiger, and lose its power of influencing good behaviour, even in areas that are not subject to judicial review.”

Rajan added that second-guessing all regulatory decisions could also mean delay in the decision-making process which could bring the system to a standstill. “....a lot of regulatory action stems from the regulator exercising sound judgment based on years of experience. In doing so, it fills in the gaps in laws, contracts, and even regulations. Not everything the regulator does can be proven in a court of law.”

Taking the example of the securities appellate tribunal (SAT), which mostly questioned administrative decisions such as the size of penalties imposed by a regulator, etc, there is no problem. “But if it goes beyond, and starts entertaining questions about policy, the functioning of a regulator like the RBI, which has to constantly make judgments intended to minimise systemic risk, will be greatly impaired,” Rajan said.
 

 

Comments

 

Other News

Fewer and fewer parliament sittings

The winter session of parliament this year is going to be from December 15 to January 5, which will result in fewer sittings and impact legislative productivity. When parliament meets for a fewer days, it is bound to have an adverse impact on the work. The parliamentarians do get to spend mo

Indians most affected by global internet policies: Aruna Sundararajan

 People in India are most affected by global internet policies, said secretary, department of telecommunications, Aruna Sundararajan. Flagging the challenges of national governance, Sundararajan said on social media India has the largest number of users.   

Three killed as train derails in UP

Three passengers were killed and around a dozen sustained grievous injuries after nine coaches of Vasco Da Gama-Patna express derailed near Manikpur railway station in Uttar Pradesh on Friday morning. Similarly, 14 wagons of a goods train also jumped off the track near Cuttack in Odisha. 

Should Patidars of Gujarat be given reservation?

Should Patidars of Gujarat be given reservation?

Job market is currently experiencing structural change: Nathan

SV Nathan, partner and chief talent officer, Deloitte India spoke to Praggya Guptaa about the current job market situation and the upcoming opportunities in India. How would you assess the job market situation in India? If you look at the economy today

Are we seriously fighting malnutrition?

It did not surprise me when the India: health of the nation’s states, the India state-level disease burden initiative report released recently reported malnutrition the prime risk factor driving the most deaths and disability in Madhya Pradesh. Even in 1990 malnutrition was the frontrunner and after



Video

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter