Financial Regulation – Role & Need

Financial Regulatory Bodies are the public authorities

or government agency that is responsible for exercising
autonomous authority over specific areas. Wherein,
individuals are engaged in any activity, supervisory, or
regulatory capacity. Financial Regulatory Bodies is
hence a crucial topic for general banking
awareness preparation of various competitive exams.

o Different financial regulatory agencies set up the

regulatory framework of the Indian financial
system. They are entrusted with the responsibility
to ensure equality and responsibility among the
participants in that specific financial domain.
o Each financial regulator plays a key role in making
sure that the interests of the investors and all other
stakeholders are not adversely affected and that
there is fairness in the financial system of the
country.
o The major financial regulators of banks and
financial institutions in India are the Reserve Bank
of India (RBI), Securities and Exchange Board of
India (SEBI), Insurance Regulatory and
Development Authority (IRDA), Pension Funds
Regulatory and Development Authority (PFRDA),
and Ministry of Corporate Affairs (MCA)
o What are Financial Regulatory Bodies?
o A financial regulatory body is one of the public
authorities in the country responsible for exercising
autonomous authority over particular areas
wherein people are engaged in any activity, in a
supervisory or regulatory capacity.
o A financial regulatory body is set up by legislative
act in order to set standards in a specific field of
activity or operations in the private sector of the
economy, and to then implement those standards.
o Regulatory interventions function outside the
executive observation.
o In simpler terms, financial regulation is a kind of
regulation or supervision that covers the financial
institutions to certain requirements, guidelines,
and restrictions. For that, financial regulatory
bodies are set up. They can be either a government
or a non-government organization.
o The main aim of the financial regulators is to
maintain the stability and integrity of the financial
system in the country.
o Financial regulation also influences the structure of
banking sectors by increasing the diverse financial
products available. Financial regulation forms one
of the three legal categories that comprise the
content of financial law, and other two being case
law and market practices
Objectives of Financial Regulatory Bodies in
India

Following are the prime objectives of the financial

regulators in India:

o Financial Stability: protection and enhancement

of financial stability in the country
o Consumer Protection: protecting the
appropriate degree of consumers
o Market Confidence: maintaining the confidence
in the financial system
o Reduction in financial fraud/
crimes: reducing the possibilities of businesses to
face finance-related crimes or frauds

Financial Regulatory Bodies in India

In India, the financial system is regulated by

independent regulators incorporated with the field of
insurance, banking, commodity market, pension funds,
and capital market.

The Indian government is also accountable for playing

a significant role in handling the field of financial
safety as well as influencing the roles of such
mentioned regulators. The most commonly known and
significant of all the financial regulators in India is
the Reserve Bank of India (RBI).

An independent regulatory agency is one that is not

dependent on the other branches or arms of the central
government. Regulatory authorities are set up to
enforce standards and security.
Following are the different financial regulatory bodies
in India:

Regulatory Sector Headquarters

Body

Reserve Bank of Banking & Bombay

India (RBI) Finance,
Monetary Policy
Securities & Securities Bombay
Exchange Board (Stock) &
of India (SEBI) Capital Market
Insurance Insurance Hyderabad
Regulatory &
Development
Authority
(IRDAI)
Pension Fund Pension New Delhi
Regulatory &
Development
 Authority
(PFRDA)
National Bank Financing Rural Bombay
for Agriculture Development
and Rural
Development
(NABARD)
Small Industries Financing Lucknow
Development Micro, Small,
Bank of India and Medium-
(SIDBI) scale
Enterprises
National Financing New Delhi
Housing Bank Housing
(NHB)
Association of Mutual Funds Bombay
Mutual Funds
(AMFI)
Factors Affecting Financial System:

o Demand and supply is one of the factors

o Lack of right and constructive approach to rule-
making
o Financial and digital literacy among the people of
the nation
o Existence of monopoly in the market
o Launching innovative solutions for supporting
public good investments like the UPI (Unified
Payment Interface), etc.

Ways to Improve Financial Sector

o Financial inclusion among the people of the

country
 o Revising the existing policies for proper functioning
of the system
o Enabling the transparency in the process of price
discovery by the market determination of interest
rates that improve allocative efficiency of the
resources
o Preparing the financial system for increasing
international competition
o Giving autonomy to the institutions

Reserve Bank of India

The Reserve Bank of India is entrusted with the

statutory powers of supervising the banks and
promoting efficient and healthy banking systems in the
country. The RBI is given wide powers of monetary
policy making, supervising, and controlling the
commercial, cooperative, and regional banks in India.

o Every new bank and/ or branch being established

in India must have a valid license from the RBI to
do so.
o The nationalized and rural banks come directly
under the control and supervision of the RBI
o RBI ensures monetary, price, and financial stability
in the country
o It ensures the regulation of currency and credit in
the economy
o The RBI also ensures the development of efficient
financial structure of India

Fully owned subsidiaries of RBI include:

o Deposit Insurance and Credit Guarantee

Corporation of India (DICGC)
 o Bharatiya Reserve Bank Note Mudran Private
Limited (BRBNMPL)
o Reserve Bank Information Technology Private
Limited (ReBIT)
o Indian Financial Technology and Allied Services
(IFTAS)

Securities & Exchange Board of India (SEBI)

The SEBI is an apex body that looks after the

regulation of the securities market in India. It was
established in 1988 and was given statutory powers in
1992. The SEBI is responsible for:

o Formulating guidelines and the code of conduct for

the proper functioning of the financial
intermediaries and businesses
o Regulating businesses in the stock exchange and
other securities market
 o Conducting audit and enquiries of the exchanges
o Registering and protecting the interest of the
securities market participants. These include
trustees of the trust deeds, brokers, sub-brokers,
investment advisors, merchant bankers,
intermediaries, etc.
o Levying fees
o Formulating, implementing, and monitoring
exercising powers
o Registering and regulating credit rating agencies
and self-regulating organizations
o Identifying and prohibiting insider trading and
unfair trade practices.

Insurance Regulatory & Development

Authority (IRDA)

The IRDA is another important financial regulatory

body that regulates the insurance industry in India. It
was established as per the provisions of the Insurance
Regulatory and Development Authority Act of 1999. Its
headquarters are situated in Hyderabad, Telangana
State. The IRDA is responsible for the following:

o Registering, issuing, renewing, and cancellation of

license
o Specifying qualifications, the code of conduct, and
providing to training to the agents and other
intermediaries
o Protecting the rights of the insurance policyholders,
providing registration certificates to the life
insurance companies. Besides, the IRDA is also
concerned with renewing, modifying, cancelling
and/ or suspending the registration certificates as
and when it deems fit
o Promoting efficiency in the conduct of the
insurance business, and promoting and regulating
professional organizations that are directly or
 indirectly connected with insurance and
reinsurance business
o Regulating investment of funds by insurance
companies, adjudicating between insurers and
insurance intermediaries