{"id":241935,"date":"2023-05-11T20:09:22","date_gmt":"2023-05-11T14:39:22","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=241935"},"modified":"2023-05-11T20:09:22","modified_gmt":"2023-05-11T14:39:22","slug":"balancing-regulatory-approaches","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/balancing-regulatory-approaches\/","title":{"rendered":"Balancing regulatory approaches"},"content":{"rendered":"\n

Source<\/strong>: The post is based on the article\u00a0\u201cBalancing regulatory approaches<\/strong>\u201d published in Business Standard <\/strong>on\u00a011th<\/sup> May 2023<\/strong>.<\/p>\n

Syllabus: GS 3 \u2013 Economy \u2013 Capital Market<\/strong><\/p>\n

Relevance: <\/strong>concerns with SEBI<\/p>\n

News<\/strong>: There have been debates over whether regulators should follow a principle-based or rule-based approach (PBA or RBA) in framing regulations for the financial markets.<\/p>\n

What is PBA and RBA?<\/strong><\/h2>\n

Principle-based approach (PBA):<\/strong> It involves providing broad guiding factors in regulations while giving flexibility to regulated entities to work out on operational requirements.<\/p>\n

Rule-based approach (RBA):<\/strong> It involves listing out possible scenarios and detailing specific penal consequences for violations.<\/p>\n

Which is a better form of regulatory practice?<\/strong><\/h2>\n

PBA is effective in developed countries<\/strong> with mature markets, wherein the reputational risks are taken seriously and the law enforcement mechanisms are robust.<\/p>\n

Whereas, RBA may be effective in developing countries<\/strong> which lack market maturity and do not have a robust law enforcement mechanism.<\/p>\n

While PBA appears to be more in line with free market philosophy, RBA appears intrusive with a control and command approach.<\/p>\n

How does the Securities and Exchange Board of India (Sebi) regulate the financial markets in India?<\/strong><\/h2>\n

Sebi follows a well-established procedure in drafting various regulations<\/strong>. It has subject-specific committees and various stakeholders as members to make recommendations.<\/p>\n

These recommendations and changes are generally influenced by tribunals\u2019\/ courts\u2019 rulings, and changes in the parliamentary laws.<\/p>\n

What are the challenges with SEBI?<\/strong><\/h2>\n

The most challenging part of the SEBI is the effective implementation of the law<\/strong>.<\/p>\n

A law framed for the financial market needs to be strong enough to cater the demand of stakeholders as well as prevent miscreants to misuse the loopholes in the law.<\/p>\n

Further, at times even a straightforward regulation may also create trouble for the regulator.<\/p>\n

SEBI is often criticized for over-regulation<\/strong>. For instance,<\/strong> the primary function of the SEBI is to protect the investors interest. At times, the concerns over the investors in case of scam gets highlighted.<\/p>\n

In such a case, SEBI comes up with more rule-based regulation, which also might have unintended consequences, giving a negative image of SEBI in the market.<\/p>\n

Therefore, while SEBI is trying its best to function as an effective regulator, still it has to face the criticism and often finds itself isolated when a market mishap or scam happens.<\/p>\n

What can be the way ahead?<\/strong><\/h2>\n

Looking at the present scenario, the financial sector regulators in India are likely to continue favouring the RBA.<\/strong> However, this may be problematic for technology-driven regulated activities due to the rapid changing technology.<\/p>\n

Moreover, if the industry favours principle-based laws<\/strong>, it must go beyond just wanting “ease of doing business” and show maturity, responsible behaviour, and self-discipline.<\/p>\n

There is also a need to strengthen the tribunals\/courts dealing with the financial sector in terms of trained manpower and infrastructure.<\/strong><\/p>\n

Hence, for a responsive and effective regulatory system, the entire ecosystem needs to support and encourage the regulatory practices.<\/p>\n","protected":false},"excerpt":{"rendered":"

Source: The post is based on the article\u00a0\u201cBalancing regulatory approaches\u201d published in Business Standard on\u00a011th May 2023. Syllabus: GS 3 \u2013 Economy \u2013 Capital Market Relevance: concerns with SEBI News: There have been debates over whether regulators should follow a principle-based or rule-based approach (PBA or RBA) in framing regulations for the financial markets. What… Continue reading Balancing regulatory approaches<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[10503,216],"class_list":["post-241935","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-business-standard","tag-gs-paper-3","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704814076},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/241935","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=241935"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/241935\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=241935"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=241935"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=241935"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}