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

Government sanctions new posts to hire cyber security professionals

The government has sanctioned 111 posts of cyber security professionals for the Indian computer emergency response team (ICERT) under the ministry of electronics and information technology (MEITY), according to a ministry official, who added that the posts were sanctioned earlier this year. 

Bhutan’s pursuit of happiness, shortage of health sub-centres in UP, and role of digitisation in IGNOU

In many ways the story of Gross National Happiness in a country is the story of Bhutan and its modern history. There are two major transition points in Bhutan’s recent history, the beginning of the monarchy in 1907, and the transition to a Constitutional monarchy in 2008, and the pursuit of happine

Do you agree with the ban on the sale of cattle for slaughter through animal markets?

Do you agree with the ban on the sale of cattle for slaughter through animal markets?

Modi inaugurates India’s longest bridge in Assam

  Prime minister Narendra Modi celebrated three-year of his government on May 26 by inaugurating Dhola-Sadiya bridge over the Brahmaputra river in Assam’s Tinsukia district. It is the longest bridge in India, which runs 9.15 km from end to end and connects Assam with Arunachal Pradesh.

IndianOil registers highest ever profit of Rs 19,106 crore

 IndianOil posted a net profit of Rs 19,106 crore for 2016-17 fiscal as compared to a profit of Rs 11,242 crore in the last fiscal. The income from operations for the financial year 2016-17 was Rs 4,45,373 crore as compared to Rs 4,06,828 crore in the previous fiscal. IndianOil`s income from

Maiden flight of HAL’s light utility helicopter

 Hindustan Aeronautics Limited (HAL) carried out first flight of light utility helicopter (LUH)-PT-2 on May 22 at its Bengaluru-based facility. The flight duration was about 22 minutes and pilots reported nil snag, HAL said.   “These maiden flights of indig



Video

कालेधन पर किया हुआ अपना वादा पूरा करूंगा - मोदी

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter