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Monday, Jan 31, 2005

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Ministry proposes super regulator for financial sector

Sarbajeet K. Sen

New Delhi , Jan. 30

THE merger bug has well and truly bitten the Finance Ministry. In a move that would have significant impact on the financial sector, the Ministry has expressed its intent to move towards a single super regulator for the financial sector.

The proposal seeks to bring the present regulatory regime under one composite regulator by merging the functions of the Reserve Bank of India (RBI), Securities Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority (IRDA) and the yet to be constituted Pension Fund Regulatory and Development Authority (IRDA).

"At some point of time, the Government will have to seriously consider one common super regulator for the financial services industry in the mould of the FSA (Financial Services Authority) in the UK," the Finance Ministry has said in an note prepared on regulatory convergence for the financial sector.

This is perhaps the first time that the Ministry has put in black and white its intent to move towards a super regulator, a move that has been often been debated informally at various forums.

The issue had come up for discussion at the meeting of the Finance Minister, Mr P. Chidambaram, with the heads of public sector banks in the Capital on Friday.

The Finance Ministry has argued that the need for a regulator was becoming increasingly felt in view of the massive operational overlap in the financial market.

"Today, there is a convergence of all financial markets and banking has moved away from purely a traditional business of deposit taking and lending operations to providing a whole range of financial services. Most banks are emerging as large conglomerate providing universal banking. This poses its own challenges, more particularly on the regulatory front."

Thus, it has pointed out that though the provider of financial services is the same, the entity has to comply with regulations of the different regulators.

"One-stop shop is a common refrain and banks are keen to take advantage of their large customer base for cross-selling a variety of financial services, products like insurance, mutual funds, bonds, credit and debit cards, either themselves or through subsidiaries. While the provider of financial services is one conglomerate, the same is regulated by different entities."

In the past, various opinions have been expressed on the need for the financial sector super regulator, with senior functionaries of the regulatory bodies coming out openly against the idea.

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