Government of India Volume I: Analysis and Recommendations

INTRODUCTION
amendments frequently and, in the process, lead to regulatory uncertainties. It was
also argued that the primary legislation should provide a template for expanding
the basic principles into concrete regulations, which at times could be rules-based.
It was also argued that the limited regulatory capabilities available should be harmonised
and consolidated to promote the skills for administering the principlesbased
approach to regulation, rather than spreading such scarce skills across a
large number of entities with fragmented mandate. These principles and regulations
should address the incentive issues fundamentally, so as to minimise financial
market adventures, rather than micro-manage product structures and market
micro-structures.
7. While every regulator should encourage competition in their sector, the ultimate
responsibility of managing economy-wide competition issues should be left to the
Competition Commission. While this would help address many macro-level consumer
issues, such micro-level issues should be addressed by the sector specific
regulators and the grievance redress fora/forum. There should be greater, and institutionalised,
interface between the Competition Commission and sectoral regulators
in promoting competition and competition practices and culture.
8. While there has been a view that the redress mechanism under the Consumer Protection
Act has been functioning satisfactorily, there were also arguments that this
framework, as it exists today, is insufficient to deal with the growing complexities in
the financial sector. While some of the respondents argued for strengthening consumer
redress mechanism in each sector under the aegis of the existing regulators,
there were also suggestions for consolidating the consumer redress mechanism by
means of a single redress agency for the financial sector.
9. While some of the arguments for retaining sector specific regulators favoured retention
of commodity market regulation as a separate area, there were also arguments
that derivative markets are financial markets, there is growing financialisation of
even physical commodities, players in the system are the same, irrespective of the
underlying, and there is the need for consolidated regulation of organised trading
to be effective.
10. There were also strong views on the need for strengthening the corporate governance
process of regulators – the process of appointment, tenure, compensation
and overall skill formation and development of domain expertise. Regulatory expertise,
it was felt, is in short supply and should be made a thrust area of focus.
Transplanting civil service structures to regulatory authorities is against the basic
premise of setting up independent regulatory authorities and a new culture should
be built alongside constructing new structures.
11. On issues related to transition arrangements, there were views which encouraged
a gradual transition and those which argued for a sudden shift. The former was
based on the premise that organisations and market entities take time to adjust to
new laws and regulations, while the latter argued that greater flexibility would lead
to bargaining for longer time-frame and in the process dilute the efforts towards
institutional restructuring.
1.4. Working Group Process
As stated in an earlier section, the Commission decided to multi-task its approach by a
parallel process of WGs. Five areas were identified for detailed analysis: (i) Banking, (ii)
Securities, (iii) Public Debt Management, (iv) Payment Systems, and (v) Insurance, Pensions
& Small Savings. Each Working Group was chaired by a Member of the Commission.
Other Members were free to join any of the WGs as per their preference and attend any of
4 FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION