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Capacity, “hyperactive regulatory activity” and excessive prescription are the biggest challenges for the financial sector, said Meleveetil Damodaran, former chairperson of the Securities and Exchange Board of India (Sebi).
Damodaran, who was speaking at the Business Standard BFSI Summit on Wednesday, highlighted the need for simple and clear regulations in the financial sector.
“Post 2008, financial sector regulation is suffering from excessive activity. There has been hyperactive regulatory activity in order to justify one’s existence. It is just not regulators but includes rating agencies and investment bankers, and others in the financial sector, which are suddenly making out a case to show that they are relevant, counted and are a part of the solution and not the problem. You need regulations that are simpler and don’t get changed, have continuity and clarity,” he said.
Damodaran suggested that there should be a sunset clause for each regulation and laws to facilitate a revisit on relevance over time.
“Unless it is very basic and paramount, it must have a sunset clause because then three years or five years later, the regulator is obliged to revisit the regulation to see whether it has contemporary relevance or not,” he said.
The former bureaucrat added the need for specialised talent, ranging from lawyers to accountants, in the regulatory bodies.
“Regulatory capacity building is something to which very few jurisdictions have paid attention to. You set up a regulatory organization and then start thinking of how you will populate it – that it is not enough,” said Damodaran.
He added that the bigger challenge is whether the specialisation that people bring to the table is relevant and if it provides the regulator with the ability to understand the complexity of the issues and instruments they are dealing with.
Appreciating Sebi chairperson Madhabi Puri Buch for asking companies to focus on the spirit of the law and not just the letter, Damodaran added, “You can comply with every regulation and still run a business in a manner which is not in the interest of other stakeholders.”
Damodaran chaired the capital markets regulator from February 2005 to February 2008. He holds director positions on the board of many listed companies and has dedicated the last few decades working with the government, financial institutions, and regulatory bodies. He has also been a constant member on several committees formed by the Reserve Bank of India (RBI) and government ministries.
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