The Securities and Exchange Board of India (Sebi) does not want the proposed apex financial stability council to set itself up as an arbiter in disputes between regulatory bodies, bringing into sharp focus regulators’ concerns about the government intruding into their domain. The capital markets regulator has told the government that it does not like the proposed structure of the Financial Stability and Development Council (FSDC) and that the new agency should only concern itself with issues relating to financial stability, an official with knowledge of the development said.
On Monday, Reserve Bank of India (RBI) governor D Subbarao took the unusual step of publicly proclaiming the central bank’s opposition to an ordinance that gives a committee headed by the finance minister the power to resolve disputes between regulatory bodies. The ordinance, which ended a turf war between Sebi and the insurance regulator over unit-linked insurance products, can undercut regulatory autonomy, RBI believes.
The central bank also has some reservations about the FSDC, which will be chaired by the finance minister and comprise two committees—one on inter-regulatory issues with the RBI governor proposed to head it and another on financial stability with the finance secretary at its head. In particular, the apex bank does not like the idea of the finance secretary chairing a panel on financial stability.
Sebi, on the other hand, does not want any committees; it thinks the FSDC should not be hampered by rigid structures and that it should not cramp the style of regulators.
While the government has sought the views of RBI and Sebi regarding the FSDC, neither was consulted before the ordinance was issued last month. The Insurance Regulatory and Development Authority and the Pension Fund Regulatory and Development Authority have also been asked to send their views on the government’s FSDC concept note. Officials from both agencies were not available for comment.
Govts defend decision
Ajay Shah, a professor at the National Institute of Public Finance and Policy, said the RBI governor’s concerns over autonomy seem unfounded.
“Internationally, the central bank is given autonomy only for setting short-term interest rates and for deciding on specific transactions. On all other policy issues, it is the government which takes a call as it is accountable to the people,” he observed.
But the government was not “fully correct” either when it promulgated an ordinance to settle the Sebi-Irda spat, Mr Shah said.
“There are problems in the world of Ulips, but giving powers to Irda is definitely not a solution. Sebi has a much better history of investor protection.”
Governments defend the decision to oversee financial stability saying it is the taxpayers who pick up the tab when there is a systemic crisis and the government can intervene because it is accountable to Parliament.
But those such as Mr Subbarao are of the view that the monetary authority gets a better sense of market conditions and being the lender of last resort it can provide emergency liquidity support.