Collective regulation

The initiative of financial sector regulators — the RBI, SEBI, IRDAI and PFRDA — to coordinate their efforts in the battle against collective investment schemes by launching a portal ( sachet.rbi.org.in ) needs to be applauded. They will be joined in this effort by the National Housing Bank and Registrar of Companies besides State government agencies. Apart from proving ruinous to investors, collective investment schemes threaten the stability of the financial system and have proved hard to put down in the past. Such schemes typically operate below the radar through word of mouth and manage to stay out of the regulator’s sight. Again, they come in various forms such as jewellery savings schemes, chit funds, pyramid schemes and even plantation schemes. It is, therefore, not easy for conventional regulatory methods and systems to spot such schemes before they cause damage.

It is in this context that the latest initiative has to be seen. The idea of a website to call out those offering dubious investment propositions is an excellent example of how technology and the internet can be leveraged to eliminate blind spots in regulation. The website will enable regulators to receive on-the-ground information direct from investors who are affected. Investors can report on the website their complaints for non-receipt of interest/dividend or capital and even flag off schemes that they see as suspicious. The advantage is that regulators can access information real time and act before damage is caused. For their part, the regulators can use the portal to disseminate information on entities and schemes that they may ban from time to time.

Wonderful as this idea is, the key will be in the implementation and follow-up. Given that there are multiple regulators in operation, coordination is important. Besides, the portal, which is in English now, needs to be offered in Indian languages too as collective investment schemes typically thrive in non-urban areas where people are more comfortable in their language. The portal should also be optimised for use in smartphones or there should be the option of an app as people increasingly shift to hand-held devices to access the internet. Finally, the existence of the portal should be well publicised. One option will be to make it mandatory for all entities raising money from the public through deposit schemes, including all public companies, banks and cooperative societies to prominently display the web address on their deposit application forms or websites so that investors get familiar with it.

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