Financial Regulators to have a consultative approach
– Timothy Lopes, Manager | finserv@vinodkothari.com
The need for a consultative approach
In a post on LinkedIn, Vinod Kothari stated: “Let us face it – the business world is increasingly governed by regulations, and not rule of law. Parliamentary law in most cases is skeletal, laying what may evasively be termed as the essential principles. Most substantive rules that define, delimit or deny business freedom are made by the regulators. In the world of finance and capital markets, the regulators are SEBI, RBI, IRDA, PFRDA, etc.
This note is to make a case that significant regulatory actions, involving change of the rules that govern business, must necessarily be first proposed for public comments. A sudden change in rules can cause great difficulty as the regulated would keep searching for the rationale behind the regulatory action. Quite often, regulators come back and say: we have our own observations. But how does one justify the results of regulatory experience not being shared with the regulated? How does one conclude that the observations of the regulator are unbiased, not myopic, or that the proposed rule-making by the regulator is based on a wrong premise or flawed understanding, or that a proposed rule will not do a damage? There are occasions when a regulatory action may have to be taken without the benefit of prior discussion, but this is exceptional. Perhaps, such an action is justified when the regulator has to act abruptly, or the balance of convenience lies in immediate implementation. But for such exceptional cases, one is not able to make a case for a change in rules that takes people by surprise.
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