Financial Regulatory Bodies In India

Table of Contents

The Indian Financial System has independent regulators for each industry. The main financial industries in India are banking, insurance, capital markets, commodity markets, and pension funds. The regulators are independent organisations in charge of regulation and supervision. To guarantee the stability and integrity of the Indian financial system, each regulatory authority has its own specific regulatory framework. The primary goals of the financial regulatory agencies in India are to promote financial stability, protect consumers, preserve market faith, and reduce the risk of financial crime or fraud.

Financial Regulators in India

They are all there to ensure that participants in that particular sub-sector are treated fairly and responsibly. Each regulator plays a crucial role in ensuring that the interests of investors and all other parties are upheld and that the Indian financial system is fair.

RBI: The Reserve Bank of India (RBI) is responsible for the country’s monetary policy.

SEBI: The Securities and Exchange Board of India (SEBI) is the market regulator for the Indian capital market.

IRDAI: The Insurance Regulatory and Development Authority (IRDA) regulates the insurance industry.

PFRDA: Pensions are regulated by the Pension Funds Regulatory and Development Authority (PFRDA).

MCA: The corporate sector is regulated by the Ministry of Corporate Affairs (MCA).

Below are brief descriptions of several regulators who regulate and contribute to the growth of the financial market:

The Reserve Bank of India (RBI)

According to the provisions of the Reserve Bank of India Act, 1934, the Reserve Bank of India was founded on April 1st, 1935. The Reserve Bank’s central office was initially constructed in Kolkata before being relocated permanently to Mumbai in 1937. The Governor sits at the Central Office, which is also where policies are formulated. The Reserve Bank was initially privately owned, but since being nationalised in 1949, the Government of India has full ownership of the institution.

The RBI’s main duties are to maintain price stability in the economy and regulate credit flow in the various economic sectors. Since they are at the forefront of credit lending, commercial banks and the non-banking financial sector are most affected by the RBI’s pronouncements. In India, the RBI oversees both the money market and the banking industry.

Main Functions

Monetary Authority: The central bank formulates, implements, and monitors the monetary policy. The objective is to maintain price stability while keeping in mind the growth target.

Regulator and supervisor of the financial system: Defines the broad framework of banking operations within which the country’s banking and financial system operate. The main objective is to maintain public confidence in the system, safeguard depositors’ interests, and offer the public cost-effective financial services.

Manager of Foreign Exchange: Manages the Foreign Exchange Management Act of 1999. The objective is to motivate the orderly growth and upkeep of India’s foreign exchange market as well as facilitate payments and trade abroad.

The issuer of currency: Issues, exchanges, and destroys banknotes in addition to circulating Indian government-minted coins. The objective is to provide the citizens with an adequate supply of high-quality currency notes and coins.

Developmental role: Performs a variety of promotional functions in support of national objectives.

Regulator and supervisor of payment and settlement systems: Introduces and improves safe and effective payment methods in order to meet the needs of the general public. The objective is to preserve public faith in the payment and settlement system.

Related Functions:

- A government banker: Serves as both the central and state governments’ banker and performs merchant banking functions for them.

- Banker to banks: maintains banking accounts of all scheduled banks.

The Securities and Exchange Board of India (SEBI)

SEBI is a statutory body of the Indian government that was founded on the 12th of April, 1992. The objective of its introduction was to encourage transparency in the Indian investment sector. In addition to its headquarters in Mumbai, the organisation also has regional offices in New Delhi, Ahmedabad, Kolkata, and Chennai.

The organisation is charged with regulating the functioning of the Indian capital market. The regulatory organisation places emphasis on monitoring and regulating the Indian securities market in order to protect investors’ interests. It also attempts to foster a secure investment environment by enforcing a number of rules and regulations and developing investment-related regulations.

SEBI India follows a corporate structure. There is a board of directors, senior management, department heads, and several important departments. It consists of more than 20 departments specifically, each of which is run by a department head who is in turn governed by a general hierarchy.

Functions and Power of SEBI

As a regulatory organisation, SEBI India is vested with several powers to carry out essential responsibilities. The SEBI Act of 1992 gives the regulatory body a list of these powers. As a result of its duties, SEBI acts as a financial mediator, a protector of traders and investors, and an issuer of securities. The following pointers provide a basic overview of the same

Features

To safeguard the interests of Indian investors on the Indian stock exchange.

To encourage the growth and smooth operation of the securities market.

To control the securities market’s business operations.

To serve as a platform for various professionals, including portfolio managers, bankers, stockbrokers, investment advisers, merchant bankers, registrars, and share transfer agents.

To monitor the duties entrusted to participants, including international portfolio investors, credit rating agencies, custodians of assets, and depositors.

To educate investors about the securities markets and the intermediaries therein.

To outlaw, unethical and dishonest business practices in the securities market and related areas.

Monitor company mergers and share acquisitions.

To constantly update and maintain the effectiveness of the securities market through appropriate research and development strategies.

Powers

Quasi-judicial power: SEBI India has the authority to pronounce judgements in cases of fraud and unethical acts involving the securities market. The aforementioned power makes it easier to serve justice, accountability, and transparency in the securities market.

Quasi-executive power: SEBI has the authority to check the Book of Accounts and other important documents to find or collect proof of violations. The regulatory body has the authority to enforce rules, make decisions, and pursue legal action against violators if it finds someone breaking the rules.

Quasi-legislative power: The authoritative body has been given the authority to create appropriate rules and regulations in order to safeguard investors’ interests. These regulations frequently cover disclosure requirements, insider trading restrictions, and listing obligations. Such rules and regulations are developed by the body to eradicate fraud in the securities market.

The Insurance Regulatory and Development Authority of India (IRDAI)

The Insurance Regulatory and Development Authority of India (IRDAI) was established by an Act of Parliament, the Insurance Regulatory and Development Authority Act, 1999 (IRDAI Act 1999), for the purpose of overseeing and fostering the growth of India’s insurance industry. The Insurance Act of 1938 and the IRDAI Act, 1999 both specify the Authority’s functions and powers. Due to the dynamic nature of the insurance industry, insurance companies rely on IRDA advisories to stay ahead of new rules and regulations. The IRDAI’s primary goals include fostering competition to promote consumer choice and boost customer satisfaction while ensuring the insurance market is financially secure.

The Insurance Act, 1938 is the principal act controlling the insurance industry in India. It gives the IRDAI the authority to create regulations that specify the legal framework for regulating the sector’s operational entities. The IRDA outlines the credentials and training necessary for insurance agents and other intermediaries, and the insurer is then expected to adhere to those requirements. As per the IRDA Act, it has the authority to impose fees and change them as well. It regulates and controls premium rates as well as the terms and conditions that insurers may offer. Other Acts, such as the Public Liability Insurance Act of 1991 and the Marine Insurance Act of 1963, also regulate various aspects of the insurance industry.

Functions and Power

To safeguard the interests of policyholders and provide fair treatment;

To expedite the growth of the insurance business (including annuity and superannuation payments) for the benefit of the common man and to generate long-term finances for accelerating economic growth.

To establish, encourage, oversee, and enforce high standards for the competence, moral character, and financial stability of those it regulates

To ensure prompt resolution of legitimate claims, to stop insurance fraud and other wrongdoing, and to set up efficient grievance redressal mechanisms;

To encourage fairness, transparency, and orderly conduct in financial markets dealing with insurance, and to create a solid management information system to impose strict requirements for market participants’ financial soundness;

To take action where such standards are inadequate or not implemented properly;

To maximise self-regulation in the day-to-day operations of the industry in accordance with prudential regulation criteria.

Pension Funds Regulatory and Development Authority (PFRDA)

The Pension Fund Regulatory & Development Authority Act was passed on September 19, 2013, and it was notified on February 1, 2014. Employees of the government of India, state governments, private institutions/organizations, and unorganized sectors can subscribe to NPS under PFRDA regulation. The PFRDA regulates the growth and development of the pension market.

A national initiative called “OASIS” (an abbreviation for old age social and income security) was commissioned by the Indian government in 1999 to look into the country’s old age income security policies. The Government of India implemented a new Defined Contribution Pension System to replace the previous Defined Benefit Pension System for new entrants to Central/State Government employment, excluding the Armed Forces, based on the recommendations of the OASIS study. The Government of India passed a resolution on August 23, 2003, establishing the Interim Pension Fund Regulatory & Development Authority (PFRDA) to promote, develop, and oversee the Indian pension industry. The contributory pension system was formally renamed the National Pension System (NPS) with effect from January 1, 2004. Following this, the NPS was voluntarily made available to all citizens of the nation starting on May 1st, 2009, including self-employed professionals and other members of the unorganized sector.

The PFRDA’s preamble states that the authority’s objectives are to “promote old age income security by creating, growing, and regulating pension funds, to preserve the interests of subscribers to pension fund schemes, and for matters linked with or incidental thereto.” PFRDA has a national office in New Delhi and regional offices spread out around the nation. Promote pension plans throughout the nation by supporting both mandatory and optional pension plans to satisfy the expectations of retired workers for retirement income.

Functions

The PFRDA is in charge of regulating and supervising the Tier 1 and Tier 2 National Pension Systems.

The PFRDA is in charge of hiring many intermediaries, including the Central Record Keeping Agency (CRA), Pension Fund Managers, and others.

Educating the general public and stakeholders on the importance of pensions.

Training for intermediaries who are responsible for educating and popularising the importance of pensions.

Dealing with and resolving problems between different intermediaries, including banks, as well as between consumers and intermediaries.

Ministry of Corporate Affairs (MCA)

The MCA is responsible for carrying out the administration of the Companies Act in all of its forms. It establishes the norms and regulations for the lawful operation of the corporate sector. It is in charge of all the acts and rules that govern the functioning of India’s corporate sector. The MCA’s Registrar of Companies authorizes company registrations as well as their functioning as per law.

Roles & Responsibilities

The Ministry’s main responsibility is to administer the Limited Liability Partnership Act of 2008, the Companies Act of 1956, the Companies Act of 2013 and other related Acts, as well as the rules and regulations framed thereunder, with the aim of ensuring that the corporate sector operates in accordance with the law.

The Ministry is also in charge of enforcing the Competition Act of 2002, which was put in place to defend consumers’ interests by promoting and sustaining competition in markets and to stop actions that have a negative impact on competition.

Additionally, it oversees the three professional organisations, the Institute of Chartered Accountants of India (ICAI), the Institute of Company Secretaries of India (ICSI), and the Institute of Cost Accountants of India (ICAI), which were established under three different Acts of the Parliament for the proper and orderly development of the professions involved.

Along with these duties, the Ministry is in charge of carrying out the Central Government’s administrative duties under the Partnership Act of 1932, the Companies (Donations to National Funds) Act of 1951, and the Societies Registration Act of 1980.

Conclusion

The RBI issues currency and distributes it around the nation. Additionally, it manages the nation’s foreign exchange reserves. It controls credit by determining the interest rates at which banks lend. The SEBI is the regulator of the capital markets. Along with regulating exchanges and capital market operations, it also safeguards investors. It imposes penalties and fines on lawbreakers.

The country’s insurance industry is monitored by the IRDA. It regulates insurance prices and the products offered by firms to consumers. Complaint resolution is one of its main responsibilities. The pension fund industry is governed by the PFRDA. It controls how pension funds can invest their money and have as its primary objective the income security of senior citizens. Its mandate includes raising awareness of pension schemes throughout the country. The MCA establishes the rules and regulations that govern the lawful operation of the corporate sector.

Interested in how we think about the markets?

Watch/hear on YouTube:

Start investing through a platform that brings goal planning and investing to your fingertips. Visit Kuvera.in to discover Direct Plans and Fixed Deposits and start investing today.

#MutualFundSahiHai #KuveraSabseSahiHai!