Consultative regulation-making that must go further
When proposing any brand-new guidelines or change to existing guidelines, the RBI will now carry out ‘effect analyses’ and SEBI will specify the ‘regulatory intent and objectives’. Financial sector regulators such as the RBI and SEBI ought to: identify the market failure that requires regulatory intervention; demonstrate how the suggested regulation will deal with such failure; perform a cost-benefit analysis to demonstrate the expected impact of the proposed regulation, and develop a monitoring and evaluation structure to assess the effect of the guideline. The reporting of the following details on an annual basis will strengthen accountability: the number of public consultations vis-a ̀- vis the number of proposed policies or modifications; reactions received; recommendations that have actually been accepted and turned down; reasoning for acceptance and rejection; the impact of public feedback on the proposed guideline or modification, and, lastly, all associated timelines.
When proposing any new regulations or amendment to existing policies, the RBI will now conduct ‘impact analyses’ and SEBI will specify the ‘regulative intent and objectives’. The concern of market failure The RBI’s effect analyses and SEBI’s declarations of goals need to be grounded in financial reasoning that identifies the problem that their proposed guideline will resolve. Financial sector regulators such as the RBI and SEBI need to: identify the market failure that demands regulatory intervention; show how the suggested regulation will address such failure; carry out a cost-benefit analysis to show the expected effect of the proposed policy, and develop a tracking and assessment structure to assess the impact of the regulation. It was found by two scientists that between June 2014 and July 2015, the RBI had actually looked for public remarks on 2.4% of its circulars while SEBI had done the exact same on less than half of its regulations. The reporting of the following information on a yearly basis will strengthen accountability: the number of public assessments vis-a ̀- vis the number of proposed policies or modifications; reactions received; ideas that have actually been accepted and declined; reasoning for approval and rejection; the effect of public feedback on the suggested regulation or change, and, finally, all associated timelines.
