Column: The human dimension of regulation

Font Size

Print

Feedback

Email

Discuss

• Discount UK Shopping

: In this third part of the series analysing the sagacity of creating a super regulator for financial services, we examine benefits in the area of human resource management that could be derived from having a super-regulator vis-à-vis the current arrangement of sectoral regulators. Since it is the people that make or break any organisation, a sound regulatory system requires talented officials that can match the abilities of employees working in the entities that are being regulated.

In this context, it is pertinent to point out the following fact. In each of our regulatory institutions, only a handful of officials at the entry level are drawn from the top management schools in the country. In contrast, in the leading private banks of the country and foreign banks, a majority of the officials at the entry level are drawn from the top management schools. This difference matters for two important reasons.

First, given the increased use of financial engineering through securitisation as well as the use of financial derivatives, the importance of specialised expertise has increased manifold. Therefore, substantial differences in hiring policies between the regulated entities and the regulatory institutions can engender a grave danger to the financial system and, in turn, the macro economy. In sporting parlance, the umpire needs to be as smart and possess as much specialised expertise as the players themselves. Given the increased role of securitisation and financial derivatives, talent that is schooled in these specialised areas of expertise needs to be incentivised to join the regulator. Differences in human resource policies can have detrimental effects for another, more cynical, reason. Given the nature of the selection processes for our top schools such as the IITs and IIMs, students that get educated at these institutions differ in one significant, albeit negative, characteristic—the ability to play the system better.