Government of India Volume I: Analysis and Recommendations

FUNCTIONS AND POWERS OF THE REGULATOR
Table of Recommendations 4.7 Giving permission to carry out a business
The system of giving permission to new entities must be strictly governed by regulations and finished within a time
bound manner. The provisions must:
◮ Provide a system for persons to apply for authorisation to provide financial services;
◮ Ensure that all applications are accepted or rejected within a specified time;
◮ Ensure that whenever an application is rejected, reasons for the rejection are provided; and
◮ Provide that the regulator gives warning to the applicant before rejecting an application.
Table of Recommendations 4.8 Information gathering
The draft Code contains the following provisions on information gathering:
1. The regulator should have the power to collect information from regulated entities;
2. The regulator should have power to collect information from other government agencies;
3. Information should be collected in electronic format as far as possible; and
4. The regulator should publish information it generates (orders, decision, list of regulated entities) in the public
domain (apart from confidential information).
agencies. Harmonisation into a single mechanism for electronic submission of information
will reduce the cost of compliance for firms and also reduce the cost of information
management for regulator. The Commission proposes to create a centralised database,
through which all the information is collected by regulator and other agencies. A more
detailed discussion on this centralised database can be found in the chapter on systemic
risk. Maintaining and analysing this information is an important indicator of violation of
provisions in many situations. Even at present, most regulators have the power to require
regulated entities to produce documents and information in normal course of regulation.
This power should be continued in the proposed legislation. Table 4.8 contains other details
regarding information gathering powers.
The Commission also noted that the use of technology is crucial in the context of the
information gathering function. Using electronic systems will affect stake-holders in the
financial system in the following ways:
1. Regulator: Use of electronic data management will provide regulator with real-time information
about financial entities. It will also provide regulator with modern analytical systems to track
violations or risks. Toward this end, the Commission proposes to create a centralised database
that will use state-of-the-art data management systems to route regulatory data.
2. Regulated entities: Use of electronic reporting systems may reduce compliance costs for regulated
entities. It will also allow regulated entities to provide information to the regulator in a
seamless manner.
3. Consumers: Access to records of the regulator about regulated entities in electronic format will
allow consumers to gain information quickly. It will also help consumers to access their own
records and check for financial frauds.
4.2.3. Investigations
It is important that the powers of investigation and enforcement are carried out in the
least arbitrary and the most effective manner. The Commission has noted that executive
functions in the financial market can have serious consequences. The information that
a firm is under investigation may cause undue panic in the market and even if the result
of investigation is a positive outcome for the firm, the intervening period may cause
irreparable damage to the reputation and business of the firm. The system of investigations
should therefore be such that it does not harm or unduly burden the entity under
investigation (see Table 4.9).
The Commission is of the opinion that the executive investigation process should be
carried out in:
34 FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION