Financial markets play an important role in the growth of a country’s economy. Similarly, the financial regulators play an important role in the growth of financial markets. The role of the financial regulator is to implement the regulations consistently. For the effective control and supervision of financial markets, the regulatory authorities ensure that the participants of the market behave in a desired manner.
The paper shows the work of regulators by defining how they see the financial market and act upon it to control and supervising the functions. In most cases, financial regulatory authorities regulate all financial activities. But in some cases, there are specific authorities to regulate each sector of the finance industry, mainly banking, securities, insurance and pension markets.
Keywords: Financial regulation, control, and supervision, regulatory authorities.
Financial regulation is control or supervision, which subjects financial institutions to certain requirements, restrictions, and guidelines, aiming to maintain the integrity of the financial system. This may be handled by either a government or non-government organization. Financial regulation has also influenced the structure of banking sectors by increasing the variety of financial products available.
Structure of Supervision:
Acts empower organizations, government or non-government, to monitor activities and enforce actions. There are various setups and combinations in place for the financial regulatory structure around the global.
Supervision of stock exchanges:
Exchange acts to ensure that trading on the exchanges is conducted in a proper manner. Most prominent the pricing process, execution and settlement of trades, direct and efficient trade monitoring.
Supervision of listed companies:
Financial regulators ensure that listed companies and market participants comply with various regulations under the trading acts. The trading acts demand that listed companies publish regular financial reports, ad hoc notifications or directors’ dealings. Whereas market participants are required to publish major shareholder notifications. The objective of monitoring compliance by listed companies with their disclosure requirements is to ensure that investors have access to essential and adequate information for making an informed assessment of listed companies and their securities.
Supervision of investment management:
Asset management supervision or investment acts ensures the frictionless operation of those vehicles.
Supervision of banks and financial services providers:
Banking acts lay down rules for banks which they have to observe when they are being established and when they are carrying on their business. These rules are designed to prevent unwelcome developments that might disrupt the smooth functioning of the banking system. Thus ensuring a strong and efficient banking system.
Financial Regulatory Bodies in India:
In India, the financial system is regulated with the help of independent regulators, associated with the field of insurance, banking, commodity market, and capital market and also the field of pension funds. On the other hand, the Indian Government is also known for playing a significant role in controlling the field of financial security and also influencing the roles of such mentioned regulators.
RBI – Reserve Banks of India:
Reserve Bank of India is the apex monetary Institution of India. It is also called as the central bank of the country. It was established on April 1, 1935, in accordance with the provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in Kolkata (then Calcutta) but was permanently shifted to Mumbai in 1937. It has other offices in New Delhi, Chennai and Kolkata. The Reserve Bank is fully owned by the Government of India.
Reserve Bank of India (RBI) is the supreme authority of Indian financial market. So the decisions taken by RBI is very important for the Indian market. It regulates all the financial actions of banking sectors. RBI decides the interest rate, bank rate, repo rate, SLR ratio etc. It creates the balance between inflation and deflation. Inflation is high demand and less supply, deflation is less demand and excess supply. Both inflation and deflation are bad for the economy and financial market, so RBI monitors the conditions in the economy and accordingly decides the interest rates to maintain the economic growth. Stock markets investors and traders closely watch the RBI actions as RBI cuts the interest rate that boosts up the sentiment of equity market because it increases the liquidity in the market while higher interest rate demotivates the investors to invest in stock market.
The Role of RBI:
1. Safety of public money.
2. Ensure productive use of funds.
3. Ensure sound and healthy banking system.
4. Stable monetary position.
5. Maintain the value of rupee.
6. Ensure effective coordination and control among various participants of Indian financial system.
7. Control over credit and price level in the country.
SEBI – Securities and Exchange Board of India:
SEBI forms a major part of the financial body of India. This is a regulator associated with the security markets in Indian Territory. Established in the year 1988, the SEBI Act came into power in the year 1992, 12th April. The board comprises of a Chairman, Whole-time members, Joint Secretary, the member appointed, Deputy Governor of RBI, secretary of corporate affair ministry and also a part-time member. There are three groups, which fall under this category, and those are the investors, the security issuers and market intermediaries.
It has framed a set of regulations, bye-laws and surveillance system so as to provide the end users with safety and transparency while dealing in securities. It has introduced many regulatory measures and code of conduct for various intermediaries which include portfolio managers, brokers and sub-brokers, underwriters, merchant bankers and so on.
The Role of SEBI:
1. Restricts illegal practices:
It forbids illegal and fraudulent practices of the firm which operate in the securities market.
2. Safeguard investor’s interest:
It protects investor’s interest in the capital market through guidance and proper education.
3. Regulate working of exchanges:
It regulates and keeps a check on the workings of stock exchanges and other aspects of the securities market.
4. Monitor the workings of mutual funds:
It monitors and regulates the working of mutual funds. It keeps a tight supervision on their business operations and protects investors from any unfair practices.
5. Monitor the functioning of intermediaries:
Keeps a tight check on the functioning of the intermediaries like merchant bankers, stockbrokers and other intermediaries present in the capital market.
6. Regulate takeovers and acquisitions:
They issue guidelines to regulate takeovers, mergers, and acquisition of firms to protect investor’s interest.
7. Prohibition of insider activity:
It prohibits insider activity and also restricts undesirable practice of brokers and other agents in the capital market.
8. Conducting audit:
It conducts audit, inspection and other suitable measures to keep a check on the workings of stock exchanges and other intermediaries.
IRDA – Insurance Regulatory and Development Authority:
The Insurance Regulatory and Development Authority of India (IRDAI) is an autonomous, statutory agency tasked with regulating and promoting the insurance and re-insurance industries in India. IRDA Act was passed by parliament in December’1999 and it received president approval in January’2000. The main aim of the authority is “to protect the interest of holders of Insurance policies to regulate, promote and ensure orderly growth of Insurance industry & for matters connected therewith or incidental thereto.” The agency’s headquarters are in Hyderabad, Telangana, where it moved from Delhi in 2001.
The Role of IRDA:
1. To safeguard the interest of and secure fair treatment to insurance policy holders.
2. To bring the quick and systematic growth of the insurance industry or sector in order to provide benefits to the common man and also to provide long-term funds for accelerating the growth of the economy.
3. To set, promote, monitor and apply high standards of integrity, fair dealing, financial viability and capability of those it regulates.
4. To make sure that insurance policy holder receives precise, accurate, clear & correct information about the products & services provided by insurance companies & also make customers aware of their duties & responsibilities in this regard.
5. To ensure quick settlement of genuine claims, to prevent insurance frauds, scams & other malpractices and put in place operative grievance redressal machinery.
6. To boost transparency, fairness, and orderly conduct in financial markets dealing with insurance & build a trustworthy management information system in order to enforce high standards of financial soundness amongst market players.
7. To take appropriate actions where such standards do not prevail or are inadequate & ineffectively enforced.
8. To bring about the optimal amount of self-regulation in day-to-day activities of the industry reliable with the requirements of the prudential regulation.
PFRDA – Pension Fund Regulatory and Development Authority:
The Pension Fund Regulatory and Development Authority (PFRDA) is the pension regulator of India which was established by Government of India on August 23, 2003, and was authorized by Ministry of Finance, Department of Financial Services. Upon introduction of the PFRDA Bill by the Government of India in the Parliament of India and the subsequent passage of the PFRDA Act in 2013, the Authority became a Central Autonomous Body.
Like other financial sector regulators namely Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDAI) and Insolvency and Bankruptcy Board of India (IBBI), PFRDA is a quasi-government organization having executive, legislative and judicial powers. PFRDA promotes old age income security by establishing, developing and regulating pension funds and protects the interests of subscribers to schemes of pension funds and related matters.
Currently, PFRDA is regulating and administering the National Pension System (NPS) along with administering the Atal Pension Yojana (APY) which is a defined benefits pension scheme for the unorganized sector, guaranteed by the Government of India. PFRDA is responsible for the appointment of various intermediate agencies such as Central Record Keeping Agency (CRA), Pension Fund Managers, Custodian, NPS Trustee Bank, etc.
The Role of PFRDA:
1. Monitor the performance of the various intermediaries.
2. Safeguarding the interest of subscribers.
3. Regulate the manner in which subscriber contributions are invested by PF(s) and will make all efforts to ensure fair play for subscribers.
4. It ensures that all stakeholders comply with the guidelines/ regulations issued from time to time.
5. It creates the rules and regulations, time to time.
For example, it makes sure that the pension funds are investing your money in profitable assets. Also, it takes care of the resolution of your complaints. It orders the related stakeholder to resolve the issues you are facing. If stakeholders do not resolve it within the given time period. Then PFRDA takes action against them. PFRDA is also responsible for establishing, promotion and development of the pension system.
FMC – Forward Markets Commission:
FMC is the chief regulator of the commodity (MCX, NCDEX, NMCE, UCX etc.) of the Indian futures market. As per the latest news feed, it has regulated the amount of Rs. 17 trillion, under the commodity trades. Headquarter is located in Mumbai, and the financial regulatory agency is working in collaboration with the Finance Ministry. The chairman of FMC works together with the Members of the same organization to meet the required ends. The main aim of this body is to advise the Central Government on matters of the Forwards Contracts Act, 1952.
The Role of FMC:
FMC as a sole institution governing the functioning of the commodities market in India executes a plethora of roles. Some of the major roles that the entity performs are henceforth:
1. The Commission counsels the Central Government on matters concerning the recognition or retraction of the previously accorded recognition from any of the association. Additionally, the institution also provides advice on other matters that surface as a result of the administration of the Forward Contracts (Regulation) Act 1952.
2. FMC time and again provides suggestions to uplift the functioning of the organization as well as forward markets.
3. As and when required, the entity holds rights to cross-check and inspect accounts as well as other documents of registered associations as well as their members.
4. The entity also keeps a vigil on the forward commodities market and exercises such assigned discretionary powers that are in the interest and growth of the markets.
5. FMC sources collect and publish information concerning trading conditions for different commodities. The details of such information generally comprise demand, supply, and price.
Financial regulators play an important role in all the fields of the financial system. Their role has an effective impact on the working of the financial system. They stabilize the financial system by controlling and supervising every activity taking place. Hence, the regulators are the very important factor for the financial system of the country.