B N Srikrishna, Chairman of the Financial Sector Legislative Reforms Commission, today said some financial sector regulators were not happy with the commission recommendations as they seek to cut certain powers of the regulators and make them more accountable.

“How can they (some regulators) be happy (about the report), when it seeks to put a cap on their powers and make them more accountable,” he commented when asked by media persons to comment on the reported remarks made by RBI Governor against parts of the commission report.

Last month, Rajan was quoted in the media as describing one set of the commission recommendations as “somewhat schizophrenic” and seeking a further debate on the report.  He identified two issues in the report that pertain to the size and scope of regulators and their oversight as the areas of tension, describing the commission’s recommendations on these issues as somewhat schizophrenic.

Continuing the line that the commission has taken, Srikrishna said: “Many of the things we do to make regulators more effective also diminish their accountability to Parliament and to the people.  The problem is that we have created regulators that function as mini-States.”

The FSLRC was set up in March 2011 to review and rewrite the legal institutional framework of financial sector laws, examine the foundations of the Indian financial system and recalibrate the financial system.  It dealt with the purpose of regulation, the role of the State and the checks and balances required to make the system fair. The commission report was released last year, along with the draft Indian Financial Code.

Srikrishna disagreed with the view that judges could “second-guess” the actions of regulators.  “We believe that in a democracy wedded to the rule of law, no one, not even a regulator, is above the law.  The proposed Financial Services Appellate Tribunal would fulfil this role,” he said while delivering a lecture at the FICCI Financial Conclave earlier.

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