Amid outcry over Ponzi schemes causing huge losses to common people, Finance Minister P Chidambaram on Wednesday said there are regulatory gaps and efforts are being made to frame a new law to oversee financial sector.
"The present arrangements have a number of gap areas, where no regulators are unambiguously in-charge, such as issue of regulatory oversight over diverse Ponzi schemes that we have discovered recently. These are cleverly designed to be out of the purview of regulatory agencies," he said.
The Minister was speaking at a seminar on the 'Indian Financial Code' (IFC) which was framed by Financial Sector Legislative Reforms Commission (FSLRC) with a view to update the laws and regulations dealing with the sector. The seminar was organised by Institute of Company Secretaries of India.
The present financial architecture, the Minister said, "has evolved over the years with a sequence of piecemeal measures and piecemeal legislations responding to immediate pressures from time to time. It is not specifically comprehensively designed to meet some key objectives".
The multiplicity of regulators create gaps, ambiguity and regulatory overlap due to lack of role clarity, he said, adding "this creates inefficiencies in addressing critical emerging issues in an increasing dynamic, complex and interconnected financial world".
On the suggestion of FSLRC to enact IFC as an omnibus legislation to regulate financial sector, the Minister said: "I am not sure how much this law will go through in the same fashion when it finally goes to Parliament (but it) will be a major milestone in Indian financial sector reforms."
The recent collapse of a Ponzi scam company Saradha in West Bengal, in which people have lost thousands of crores, has underlined the need for tightening regulatory mechanism to deal with collective investment and Ponzi schemes.
Chidambaram said unlike in the past, the implementation of the FSLRC recommendations would require positive inputs from stakeholders.
"Passing legislation in India is not easy, it has become even more complex with coalitions and legitimisation of obstruction as a Parliamentary tactic. Nevertheless, we cannot give up.
"We are duty bound to people of this country to put in place a financial regulatory system that will serve us well for next 50 or more years," he said, adding the Companies Bill, which has been passed in the Lok Sabha, still awaits passage in the Rajya Sabha.
He said the existing framework also contains overlap of laws and agencies under which conflicts occur. "In recent times we had turf battles between regulators," he said.
The FSLRC in its report had suggested that financial sector regulators such as Sebi as well as Irda be merged into a Unified Financial Agency (UFA) and the role of RBI be restricted to regulating banks and managing monetary policy.
"Alongside, very careful analysis of every sentence of the existing laws and every section of proposed code will need to be taken up before we agree upon large scale repeals of legislation. The requirements on this new arrangement will be understood and attempts made to adopt necessary changes," he said.
Chidambaram said many of the elements of the FSLRC recommended legal processes are not unacceptable to the present laws.
"Therefore, I suggest the Ministry of Finance and the regulatory agencies may look seriously at operationalising some of these elements at the earliest even within the scope of the present laws," he said.