Speech by Rajeev Chandrasekhar, Mp During the Discussion in Parliament on the Securities and Insurance Laws (Amendment) Bill, 2010

09 August, 2010

Death of Independent Regulation in the Financial Sector?

The financial markets and financial sectors of our country are today valued at tens of thousands of crores and have shown systematic and solid growth over the past two decades – But more than the size growth, the markets have grown in terms of its transparency, governance and regulation – making it one of the best regulated markets in this part of the world.

As we enter this debate, we must not forget what made this possible – It was the independent regulation of the financial markets and the independence and capability demonstrated by RBI and SEBI over these years and the men who lead these regulators like YV Reddy, Damodaran etc. And as we all know, India escaped most of the trauma of the recent 2008 global economic reset because our regulators managed our financial markets well and sensibly – resisting populist and fashionable trends and bureaucratic pressures that were constantly proposed in the guise of reforms.

It is precisely this orderly transformation of our markets into a transparent and well regulated market that we are going to throw into question with this back door intrusion of the political and bureaucratic executive into the realm of independent regulation.

Sir, as a proponent of Independent Regulation and of the institution of Independent Regulators, I can say this bill sets a very bad precedent. The problem that the bill is attempting to solve is neither a unique problem nor is it new.  The so-called ULIP crisis seems to have been a deliberately created crisis.  As a matter of fact as more and more independent regulators are introduced into our scheme of governance, the problems and therefore the challenges of regulatory overlap and regulatory disputes will increase. We must realize that.

If a sectoral regulator like IRDA or TRAI attempts to regulate an sectoral entity and a functional regulator like a markets regulator like SEBI  or competition regulator like CCI attempts to regulates that entities activities qua markets or competition – there will be potential regulatory conflict.

However the solution cannot to this cannot be and must not the type suggested by this bill. Regulatory disputes and regulatory adjudication cannot compromise the concept of Independent regulation of the sector or the function, as this bill ends up doing. Sir, lets acknowledge it openly, this bill brings in a bureaucratic and political oversight into a critical and sensitive area of regulatory dispute adjudication – which is undesirable and retrograde.

Sir, Let me give you an example of what will happen in the future, if this precedent is followed and becomes the norm

The TRAI is the Telecom regulator – is tasked with managing competition as well. If it regulates competition and Competition commission also intervenes on the issue of competition in the telecom sector – and these two conflict – is it the case of the Government that the Department of Telecom or Minister of Telecom will adjudicate the dispute?

Its similar in the case of ULIPS – ULIPS should be regulated as my friend Piyush Goel said – on issues of insurance component by IRDA but when it comes to market and investments it cannot but be regulated by the markets regulator. If there is a dispute arising – real or imaginary – this kind of dispute must be still settled through an appropriate independent body – with no bureaucratic interference and involvement.

If the government is averse to courts resolving this disputes – then the solution should be a independent appellate body – or whatever type or form – but without any compromise on the independence.

Bringing the bureaucracy into this sensitive area of financial sector regulation is contrary to the Government’s own stated objective of strengthening independent regulation.

I request the Finance Minister to look at this Bill again.  The creeping influence of the Government is bad news for the future of independent regulation in our country.  I am sure he does not want this as part of his legacy and hope that he does look at creating an Independent Regulatory Disputes Appellate Tribunal, instead of the current structure.

Thank you.  Jai Hind.