The grueling issue of moving towards a single regulatory framework has been making rounds in India for quite some time. This article seeks to take a closer look at the concerned topic in the backdrop of international experiences.
Integration
of financial regulations finds its origin in the 1980s that marked the elimination
of the Glass-Stegall Act in the US that brought various financial service providers
more closer to each other. These institutions included the commercial banks, investment
banks, insurance companies, and the securities brokerage firms. But, the regulatory
structure of these entities still remained separate. Eventually, the effect was
that of an overlap in certain functional aspects of these regulators. As a consequence
of this event, the need of having a single regulator was felt with greater emphasis.
In the year 1986, Norway was the first country that established an integrated
regulatory system. This was followed by Denmark in 1988 and then by Sweden in
1991. In the 1990s, the Asian countries like Japan and South Korea also moved
towards an integrated regulatory mechanism. But it was not before 1997, that the
case of single regulator became a major topic of discussion with the establishment
of the Financial Services Authority (FSA) in United Kingdom that integrated nine
existing regulators into a single unit, though it took five long years for the
system to be fully operationalized. Let us now understand in brief as to what
is meant by regulation.
In
the broadest sense, the term regulation implies the establishment of specific
rules of behavior or the regulatory aspect, monitoring and tracking of the observations
and the overall supervision of the compliance with the specific rules. The regulatory
and supervisory aspects need to be viewed as inseparable entities. The objectives
of regulators may be manifold, such as it can be institution-based, function-based
or even can be oriented towards its products. For an example, a regulator may
regulate banks, which in turn may be involved in intermediary functions in the
capital markets. Similarly, a capital market regulator may be responsible for
regulating activities relating to public issues and securities trading whether
they are performed by banks or by non-banks. Irrespective of the nature and structure
of the regulating bodies, the primary consideration of regulators involves the
maintenance of systemic stability and protecting the investor's confidence. There
may be several other considerations that will stem from these primary activities. |
