The JPC would have to consider these before embarking on its extended remit.

Dangers of hurried verdict

Regulatory reform, in itself, justifies exclusive attention. Tagging it to the scam inquiry, which is at its fag end, can lead to apprehensions about the comprehensiveness of the findings.

The JPC report, including its "thinking on a regulatory structure", is likely to be released before the conclusion of the Budget session. The time is too short indeed. The normal procedure would involve the parliamentary secretariat issuing a formal announcement of the JPC's current move and inviting the views of experts and the public on the subject.

The committee's secretariat will have to give reasonable time for submission of such views. There are occasions where the secretariat gave the public 10 days or so to offer their views on important Bills. It is hoped that Parliament would follow the normal procedure and not rush through to meet the Budget session schedule.

Expert views, alternatives

Though experts have expressed their views on the subject, especially on the need for setting up a single regulator, a full-fledged scrutiny of them by the Executive and a formal examination of the pros and cons must be made.

For instance, the term super-regulator has been used indiscriminately. Some look at it as a committee or mechanism where all the regulators are members, presided over by the RBI Governor.

There are others who propose a single regulator — an amalgam of all the regulators, that is. There is also a suggestion to make the RBI the super-regulator through suitable legislative amendments. The RBI Deputy Governor, Dr Y. V. Reddy, had stated at a seminar in Delhi that "one way of reconciling the idea of a single regulator keeping bank supervision as a part of the central bank is to have the central bank itself as a super-regulator.

A clear example of this unified supervision is the Monetary Authority of Singapore." There is, thus, a need for concretising these ideas.

The RBI has the necessary expertise and the authority to be a super-regulator. And if the RBI is made one, and with which the other regulators are merged, the movement of personnel may be lesser than when a new set-up is contemplated by merging all the regulators, including the RBI. The issue has been debated for long and there is a need for finality.

Executive domain

That the legislature is supreme is a fundamental proposition not open to debate. It is the Executive's prerogative to decide the type of regulatory structure, and it is for the Centre to determine the reforms needed under the regulatory set-up.

Ideally, the Government should decide on the new set-up, prepare the Bill and table it in Parliament. This will give Parliament an opportunity to set up a committee to examine the Bill. The current exercise would be far different inasmuch as the committee would be examining the issue in abstract.

Simply put, it appears that Parliament is needlessly carrying on its shoulders the responsibility for a matter which falls under the purview of the Executive — a case of putting the cart before the horse.

The UK exercise

How UK's FSA — a unitary regulator — was set up is worth examining in this context. Five years back, the UK's Chancellor of the Exchequer had announced in his Budget speech the British Government's decision to take banking supervision out of Bank of England's purview and create a unitary regulator to oversee all the branches of the financial sector. That decision was followed by the publication of a consultation paper inviting the views of the public. The duration of three months, fixed initially for public consultations, was extended. The draft Bill also went through a similar consultative exercise.

The final Bill, when tabled in Parliament, went through the initial debates, and the parliamentary committee spelt out nearly 2,000 amendments.

Even when passed, the Bill became effective — as the Financial Services and Marketing Act — only a year later (on November 30, 2001) after all the glitches in the framing of the rules and procedures were set right. The entire process took nearly five years. What needs to be reiterated here are: a) the British Government's decision to set up a unitary regulator; b) the consultative process adopted for shaping a draft Bill; and c) the Bill being passed only after the normal conventions of initial debate in Parliament, formation of the parliamentary committee and its subsequent inquiry, and final debate.

Recent developments

Even as recently as March, the financial press talked of the likelihood of the RBI losing its regulatory powers, the Government blaming expansion and weak supervision for bank frauds, and so on.

There were also reports about the Government's plans to merge the various divisions in the Finance Ministry — banking, insurance and capital market — as a strategy to keep pace with the developments in the financial services sector.

In May, the Government had asked the RBI to prepare a 15-year roadmap for the financial sector — the aim, perhaps, being to dovetail policy decisions with regulatory issues.

Making Mumbai an international financial centre was also reported in the press.

Though the issue of regulatory adequacy did come up whenever financial misdemeanours occurred, no concrete decisions on the matter have been taken.

The Government has not yet made up its mind on regulatory reforms. What is surprising is that it is toying with the idea of adding a new regulator for pensions.

CEO thoughts

Over the past few years, CEOs of top financial institutions have pointed out the need for a `single regulator'. The ICICI Chairman, Mr. K.V. Kamath, has stated that his organisation markets about 10 different financial products entailing approval by several regulators.

The HDFC Chairman, Mr. Deepak Parikh, has said the merger of various group companies would be put off till the setting up of a single regulator. A former chairman of the UTI, too, favours a super-regulator. According to the SEBI Chief, Mr. D. R. Mehta, a single regulator was conceptually the best, but owing to practical difficulties currently, the next best alternative would be to opt for a `lead regulator'.

At present, 13 economies have opted for a single super-regulator.

There is a proposal to maintain the current regulatory structure and create one more apex authority — a `super-regulator' or `super-coordinator' — to ensure co-ordination, and served by a part-time secretariat of the RBI.

Why undergo the rigours of parliamentary debates and committee inquiries to produce such a skeletal organisation?

At best, such a body would meet periodically under the chairmanship of the RBI Governor with various regulatory chiefs exchanging views and a part-time secretariat mulling over the decisions. Hardly an inspiring proposition.

If the intention is to ensure co-ordination, it can be achieved without going through the hassles of piloting a legislation. Doesn't one exist even now?

The current scheme of co-ordination should be reviewed, reformed and made more transparent. The type of super-regulator mechanism being mooted will only add another statute, with all the regulators continuing to function as before.

The pros and cons of every alternative has been debated all these years. It is for the Government to take the final decision on the type of a regulatory system it wants, announce it, and introduce a Bill in Parliament.

That will give Parliament enough time to appoint an inquiry committee and debate the issue, with the benefit of the committee's considered views to boot.

It would also give all — industry, the academics, the experts and, above all, the public and the media — an opportunity to critically examine the Bill.

As Dr Reddy said in his lecture, "Above all, designing and managing all these changes require a combination of political will and professional skill."

With the latter having been supplied in good measure, it is time the Government decided on a regulatory structure to serve the financial sector of the new millennium.

(The author is a former Executive Director of LIC.)

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