Multiplicity of institutions and regulators that have come up from time-to-time to meet newly perceived requirements have potentially created regulatory overlaps, gaps and ambiguity on account of lack of role clarity.
The speed at which the financial sector operates given the changing dynamics, generates new space, sometimes `undefined' areas, giving enough opportunity for the entry of `unregulated' players in the market to exploit and squeeze the existing system, thereby leaving investors/common public in lurch, Chidambaram said at a national seminar on Indian Financial Code, organised by the Institute of Company Secretaries of India (ICSI) to deliberate upon the `Financial Sector Legislative Reform Commission' (FSLRC) report.
Taking potshots at unregulated players, he said they will endanger the discipline of the market and are creating systemic risk which forces large number of investors, particularly small investors, to stay away from the system. This also created inefficiencies in addressing critical emerging issues in an increasingly dynamic, complex and interconnected financial world, he added.
The present arrangements have a number of gaps, where no regulator is unambiguously in-charge such as the issue of regulatory oversight over diverse `ponzi schemes' that have been discovered recently. These are cleverly designed to be out of the purview of regulatory agencies, he pointed out.
"The government will move quickly to remove all unregulated space and fill the gap with suitable measures. A recent attempt in this direction was the new Companies Bill. Our endeavour is to eliminate unregulated space to protect the investors," he added.
According to him, the present financial architecture was evolved over the years with a sequence of piece-meal measures and legislations responding to immediate pressures from time to time.
It is not specifically comprehensively designed to meet some key objectives. There are challenges that lie ahead for us with regard to legislative changes, capacity building and handling the complexity of transition from the present to the proposed code.