Mentors Comment:

While FSLRC has recommended for a single unified financial sector regulator, many analysts including former RBI governor C Rangarajan have suggested against such a single regulator.

In the Introduction, write briefly about the present scenario of multiple regulators overseeing different segments of financial sector.
Then come to recommendation of single super-regulator.
Bring out the arguments in favour of it. Then write the arguments against such Super-regulator.
Conclude with way forward.

Answer:

Currently in India, there are multiple regulators overseeing the different segments of financial sectors such as RBI, SEBI, IRDA, PFRDA, FMC etc. The Justice B N Srikrishna-headed FSLRC has recommended a system where the RBI regulates the banking and payments system and a Unified Financial Agency regulates the rest of the financial markets.

Arguments in favour of such a move:
 A single regulator can avoid the emergence of possible conflicting regulations that different regulators frame keeping primarily their jurisdictional area in view.
 With increasing roles in diverse areas of financial sector, a financial institution will have to follow multiple regulations. A single financial institution is being under the supervision of multiple regulators. A single regulator would encourage diverse activities of financial institutions.
 A single regulator can ensure mechanisms for quick resolution of the unanticipated conflicting regulations.

However many analysts including former RBI governor C Rangarajan have suggested against such a single all-powerful super regulator. The problem is not as simple as it appears and the single regulator solution may create new problems:
 A single regulator may not always view the problem from different dimensions and from the viewpoint of different players in the financial system.
 A deregulated financial system provides opportunities as well as incentives for product and process innovations. For facilitating desirable changes and innovations the regulatory system should be conducive enough.
 A regulatory system should encourage greater efficiency and reduction in transaction costs while at the same protecting the integrity of the financial system. It is felt that a single monolithic regulatory organisation may not be nimble and quick enough to respond to the continuous changes that are taking place.
 All big organisations have a natural tendency to develop into unwieldy bureaucracies.
 The problems relating to friction and conflicting regulations may continue with undiminished intensity even under a single regulatory body.
 The overall administrative costs of the organisation are likely to increase more than proportionately.
 Whenever employees of the super-regulatory body launch an agitation, the whole regulatory framework of the financial sector may come to a grinding halt.
 Financial sector players may also face problems with other authorities as a result of conflicts between other laws and regulations framed by their regulators.

A more satisfactory solution to problems faced by conflicting regulations would be to devise an appropriate mechanism for conflict resolution. It may be productive to have an institutionalized regular forum of all the regulators in the financial system for exchange of views and review of important developments and resolving conflicts whenever specific problems/issues are identified.