Government of India Volume I: Analysis and Recommendations

CHAPTER 18
Notes of dissent
18.1. Note of dissent by J.R. Varma
In my view, the authorization requirement (Section 142) for providing any financial service
(which is defined very broadly in Section 2(75)) creates the risk of regulatory overreach.
Many activities carried out by accountants, lawyers, actuaries, academics and other professionals
as part of their normal profession could attract the registration requirement because
these activities could be construed as provision of a financial service. Similarly, investors
who rebalance their own portfolios regularly and day traders who routinely place
limit orders on a stock exchange could also be deemed to require authorization. An expansive
reading of Section 2(75)(k) could require even a messenger boy who delivers a
mutual fund application form to obtain authorization. All this creates scope for needless
harassment of innocent people without providing any worthwhile benefits.
The UK law by contrast requires authorization only for a narrow list of regulated activities
and there is an explicit carve out for any activity which is carried on in the course of
carrying on any profession or business which does not otherwise consist of regulated activities.
Similarly, newspaper columns and a variety of information services are excluded
from the definition of regulated activities under UK law.
The draft Indian Financial Code (Section 150(3)) does allow regulators to exclude any
activities from the definition of financial service. However, this does not solve the problem
of regulatory overreach because it relies entirely on regulatory self restraint (which is
often a scarce commodity). By contrast, under the UK law, the list of regulated activities
is defined by the government and not by the regulator itself.
In my view, the authorization requirement under Section 142 should be restricted to
a narrower subset of financial service providers.
FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION 147