Economic Survey bats for agencies within regulators to evaluate regulations

Mumbai: The Economic Survey on Friday called for creating independent agencies within financial sector regulators to evaluate their regulations “from all angles”.

These agencies, the survey said, will report to the board and not to the management of the regulator, providing an impartial and objective assessment of the regulatory processes and outcomes, including the economic and social impacts of regulations.

The assessment could highlight the economic and social impact of regulations. An economic and social cost-benefit analysis of regulations, the survey said, will prove useful to regulators in making them effective and purposeful rather than broad-based, cumbersome, and inhibiting legitimate economic activity and risk-taking. 

“Such a move will signal that regulators are willing to live by the principles they expect regulatory entities to follow. This will strengthen the credibility of the process regulators follow and improve the acceptance of the proposed measures.”

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Interestingly, former Sebi chairperson M. Damodaran, recently called for heightened regulatory impact assessment at a time capital markets are surging. Speaking at the Mint BFSI Summit in January, Damodaran said the markets have grown in complexity, size, number of investors, and number of issuers. 

“Sebi is not getting the credit for the kind of work that they are doing. They do not need advice, but in the excitement to do more good things, somewhere I think regulatory impact assessment should get factored into the decision-making process," said Damodaran.

The Survey on Friday said regulatory impact assessment is an effective tool to ensure the quality of regulations. “The regulators in the financial sector space are largely left to regulate themselves in their mandate of ensuring optimal and adequate regulation and assessing themselves,” it said.

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It added that at present, the performance of these independent regulatory bodies in the financial sector is assessed by Parliament, the department or ministry administering the parent statute, the Comptroller and Auditor General, and through judicial review. 

The financial sector is governed by independent regulatory bodies like the Reserve Bank of India (RBI), Securities and Exchange Board of India (Sebi), Insurance Regulatory and Development Authority of India (Irdai), Pension Fund Regulatory and Development Authority (PFRDA) and Insolvency and Bankruptcy Board of India (IBBI). 

The Financial Stability and Development Council (FSDC) has a broader financial stability mandate, enabling inter-regulatory coordination and promoting financial sector development, the survey said.

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“There is a vast scope for improvement in the regulatory responsiveness in terms of following participatory processes of the independent regulatory bodies,” it said. 

In fact, the survey pointed out that the Union Budget 2023-24 had recommended that the financial sector regulators include public consultations as part of the regulation-making process.