The Hindu Business Line : Govt not keen on overhauling financial sector laws, regulations

New Delhi April 14 The Ministry of Finance is unlikely to undertake any large-scale overhaul of the regulatory and legislative structure governing the financial sector as has been recommended by the committee on `Making Mumbai an International Financial Centre.'

The High Powered Expert Committee (HPEC), that recently submitted its report to the Union Finance Minister, Mr P. Chidambaram, had suggested that the Government consider enacting an omnibus legislation that would deal with the entire financial sector.

Umbrella Legislation

The panel had said that the "a new unified Financial Services Modernisation Act be drafted to bring together, under a single umbrella, all aspects of the financial services i.e. securities trading, banking, derivatives, insurance and commodity-finance."

It had said that this umbrella legislation "should reflect the holistic nature of the financial services industry, while creating the foundations for regulations to be modernised." It has suggested that the new law should be on the lines of similar legislations in operation in the US and the UK. However, it does not go into the specifics of the changes required.

Legislative Framework

Top Finance Ministry officials felt that the kind of overhaul suggested by the committee might be a highly cumbersome and long-winding process that would push back the process of setting up an International Financial Centre (IFC). In effect, ushering in an IFC would have to be done within the existing framework, albeit with alterations, whenever required.

Officials said that the Government's efforts are always directed at improving the legislative framework whenever the need arises. "During the past couple of years virtually every legislation relating to the financial sector has been amended or is in the process of being amended. We have improved our laws according to the need of the hour," a top official told Business Line.

Regulatory Structure

The official took a similar view regarding the recommendations of the HPEC that the regulatory framework for the financial sector should be overhauled to bring about "principle-based regulations (PBR)" instead of the current trend of "rules-based regulations."

"The regulatory framework for the financial sector, as in all other spheres, is a constantly evolving structure. Whenever newer regulations are called for they are being put in place," the official said. The report of the HPEC has been critical of the present regulatory structure for the financials sector and felt it was "over-prescriptive and restrictive of managerial autonomy."

Market Segment

Pointing out that the present system was "inflexible and unamenable to swift adaptation," the committee had said "in every market segment, regulators attempt to codify every detail of a business in which the share of the future can neither be predicted nor anticipated. Anything not explicitly permitted is banned."

Under PBR, the regulator articulates broad principles and avoids codifying details of allowable products, markets and business plans, the panel says.

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