Why is it that the interests of consumers and consultations with consumers is never at the centre of any rules the regulators make?
If you ask a roomful of people whether the consumer should be the primary focus of financial sector regulation, it would be safe to bet that you will have nearly 100% concurrence. Every stakeholder pays verbal obeisance to the importance of the consumer of financial services. The preamble of all statutes creating independent regulators (for capital markets, insurance or provident funds) casts a duty on regulators to ‘develop’ markets and ‘protect investors’. But, as Moneylife has repeatedly pointed out, regulators and policy-makers merely dance around issues that consumers face, without ever interacting with them to frame appropriate regulation.
This is why after 25 years of modernisation, development and regulation by India’s capital market watchdog, we have only seen an exodus of retail investors from primary and secondary market as well as mutual funds. It is also the reason why we are an under-insured nation and why our pension regulator has made no headway. But, put a set of neutral people connected with the financial sector in a room and the focus immediately becomes the consumer. At an interesting panel discussion organised by CUTS International on 16th December, there was a strong consensus that ‘there is need to focus on the consumer as the core purpose of all financial sector regulation’.
What do I mean by regulators’ dance around consumer issues without addressing them? Consider how the Securities & Exchange Board of India (SEBI) deals with mis-selling of products to retail investors. First, it makes it impossible for genuine and honest advisors or brokerage firms to function by tying them up in costs, rules, red tape and permissions. Those who ignore the regulator happily fly below the radar, unless they do something so big and foolish that they are caught. And, even the honest and ethical, who occasionally stumble on meaningless rules, are hauled over the coals.
Instead, exemplary punitive action in select cases or adopting a class action approach to mis-selling techniques will get better results. Consider the Suchitra Krishnamoorthi case that we have repeatedly documented. SEBI took long enough to issue a show-cause notice to HSBC and is now hearing the matter. A stiff monetary penalty and disgorgement order will really send a strong message to banks who have perfected the art of mis-selling of third-party products to their customers. Banks violate their fiduciary responsibility to customers when they mis-sell mutual funds, insurance or wealth management services; they get away with it because the Reserve Bank of India (RBI) has a hands-off approach to products that have separate regulators.
Tough action by RBI or SEBI in Ms Krishnamoorthi’s case would fall squarely within the new global thinking on consumer protection, which has moved away from the meaningless disclosure-based regime that we continue to follow to a policy of ‘treating customers fairly’ and ensuring that financial products are simple, easy to understand and sold on the basis of the customers’ needs and financial profile. Let’s look at a couple of key issues that came up at this consumer-centric discussion.
The multiplicity of regulators, and having similar products regulated by different regulators, leading to regulatory arbitrage and conflict between regulators was flagged off as an important concern. Turf wars between SEBI and the insurance regulator and the fact that we have a separate pension regulator when asset management companies will manage the pension funds were cited as examples.
A prominent view was that the lack of coordination between regulators was the key reason for conflicts and inappropriate regulation. And coordination was missing because regulatory bodies had become sinecures for retired bureaucrats who, often, bagged these posts without any relevant experience in the sector. These appointees were then expected to decide on complex, technical and developing issues—a tough act even for those with decades of experience in a given sector. This would not have mattered if regulators were accountable to parliament. Unfortunately, even the standing committees of parliament do not exert any clout because very few members have domain knowledge of, or interest in, regulation, good governance or consumer protection.
In the past year, the appointment of SEBI chairman has been the subject of multiple litigations. There is now a move to extend the term of the current incumbent through an executive decision. Such ugly controversies can be avoided if key appointments are validated by parliament or a select parliamentary committee as is done in the US.
Many panel members felt that the FSLRC’s (Financial Sector Legislative Reforms Committee) recommendation has provided answers to many of these issues by proposing a unified regulator. Unfortunately, dissenting notes by three of the FSLRC’s key members marred the report. One would have thought that a committee as eminent as the FSLRC, which operated on a generous public budget, would have understood the need to hammer out a consensus and present a set of unanimous and unequivocal recommendations. We also find it strange that FSLRC made almost no effort to engage with consumers or consumer organisations in the financial sector.
Prithvi Haldea, chairman of Prime Database group, raised a very significant issue. He pointed out that the absence of a systematic data collection, analysis and interpretation mechanism, that could feed into policy- and regulation-making, is resulting in poor regulation and a lack of regulatory predictability. Mr Haldea’s www.watchoutinvestors.com has been providing yeoman’s service to consumers by publishing orders of a slew of regulatory agencies, quasi-regulatory and self-regulatory organisations in the financial sector and those under the ministry of corporate affairs. Watchoutinvestors.com is doing the job that the government and our regulators ought to be doing, in creating this goldmine of collated, cleaned and standardised information which can be the basis of significant academic research and policy-making. Instead, regulators hardly give the work its due and Mr Haldea says he, often, receive threats and requests to remove regulatory orders posted on the website.
Citing an example of how data capture can improve regulation, Mr Haldea pointed out that promoters, often, reclassify themselves as public investors in order to sidestep regulations and disclosure rules. They also change the classification repeatedly, without any fear of detection, since regulators have no mechanism to track the mischief. In one case detected by Mr Haldea, a promoter had changed his classification from promoter to public investor as many as five times. In the absence professional data-mining, there is no scope for detecting or acting on early warning signals thrown up by these corporate actions.
We, at Moneylife, believe that data-mining and analysis that Mr Haldea refers to, especially with regard to information filed with the registrar of companies, is critical to detect and act against thousands of ponzi schemes or direct marketing scams that are looting gullible Indians everyday.
What was evident from this discussion was that almost every regulatory change that would be considered imperative to true consumer protection would be opposed by corporate lobbies as well as government bureaucrats who enjoy a five-year extension to the power and perks they draw at the highest level. A quick data check would also reveal that all top regulators spend over half of their time on foreign tours. This leaves little time for serious consumer protection. The result is that we have endless articulation and forced spending on ‘financial literacy’, but very little action on the ground.
Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at firstname.lastname@example.org
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The Devyani Khobragade row appears to be a motivated act ahead of a verdict of the US District Court pointing out the unconstitutionality of NSA program of indiscriminately collecting electronic data
In the context of the current row between governments of the US and India, did our President and the Prime Minister wonder as to how US companies like Accenture which have been awarded contract for so called de-duplication of ‘big data’ of Indians by Unique Identification Authority of India (UIDAI) can use the data to the disadvantage of Indians? It is reliably learnt that Ministry of External Affairs (MEA) had raised concerns against biometric UID project as well.
Responding to a question on what should a journalist choose when there is a conflict between truth and national interest, without pausing even for a moment one Professor of journalism from a university in US who visited Indian Institute of Mass Communication (IIMC) in 1999-2000 said, journalists should choose national interest. Clearly, truth is a casualty not only in war but also in journalism.
One has repeatedly heard it said that most of US media in general are an extension of the foreign policy of government of US as they consistently indulge in jingoistic reporting. One is witnessing the same in the current row in US-India relations. Indian media is doing the same.
What media in US, India and elsewhere in general seems to be failing to see through is that it is an engineered rift to create a miasma wherein the new disclosures about the 5-Eyes alliance of five English-speaking countries (US, UK, Australia, Canada and New Zealand) for the purpose of sharing intelligence does not occupy centre stage. These disclosures of classified information were made by Edward Snowden, a former contractor at US’ National Security Agency (NSA). The row might be aimed at taking this expose off the public memory. It is information warfare of sort. This alliance is directed against countries like India. Under the agreement among the alliance members interception, collection, acquisition, analysis, and decryption is conducted by each of them for an automatic sharing of intelligence.
This alliance comprises of the US National Security Agency (NSA), the United Kingdom’s Government Communications Headquarters (GCHQ), Canada’s Communications Security Establishment Canada (CSEC), the Australian Signals Directorate (ASD), and New Zealand’s Government Communications Security Bureau (GCSB). The intelligence partnership was formed in the aftermath of the Second World War ahead of transfer of power to India by UK. These “eyes” did not need to infiltrate India’s intelligence system because they were embedded there from the outset. Given such a backdrop, the entry of cyber Trojan horses in modern communications systems deployed by these Indian agencies cannot be ruled out because there is nothing in public domain to suggest that it was debugged. Not surprisingly, officials of Indian intelligence agencies have been seceding to join the alliance of these “eyes” with remarkable ease. In view of the same, the conception of converging “the entire country into one single communication entity” introduced in 1975 with the help of a UN agency whose complicity with these “five eyes” stands exposed needs to be revisited.
Besides the Five Eyes with the addition of Denmark, France, the Netherlands and Norway, it becomes a 9-Eyes alliance for conducting espionage. The role of the media houses like BBC, Reuters, Associated Press etc from these countries which form part of the alliances merits rigorous content analysis to examine whether or not the alliance of their native countries influences their reporting or not.
The Devyani Khobragade row appear to be a motivated act ahead of the verdict of the US District Court for the District of Columbia pointing out the unconstitutionality of NSA program of indiscriminately collecting electronic data to take the public attention away from this verdict. It has been revealed that our prime minister, president and almost all the ministers have all been under the surveillance of NSA.
The verdict was passed on 16 December 2013. The verdict attempts to safeguard the interests of citizens of USA. This is not applicable to non-US citizens because US laws do not recognize the rights of privacy of non-US citizens to be sacrosanct. This implies that rights of privacy of Indian citizens do not have protection either under the Indian laws, US laws or any international law at present.
It must be noted that companies like Ernst & Young (E&Y), UK and Safran Group (of France) who have got contract from UIDAI are from the countries which are part of this alliance. The core question is that if our President and Prime Minister appear seemingly unperturbed in the face of glaring evidence of they having been subject of surveillance, how they can be trusted for safeguarding the right to privacy of citizens? Had it not been an election year, it is quite likely that they would not have protested against the arrest and body cavity search of Devyani Khobragade, India’s Deputy Counsel General in New York. Had this not been the case the concerned authorities and ruling parties would have reacted similarly in the incidents concerning Dr. A. P. J. Abdul Kalam, George Fernandes, Hardeep Singh, and Shah Rukh Khan to name a few.
It is evident that India’s geostrategic position in relation to the US in particular and all its alliance members in general have been compromised by politicians who have kept personal interest above national interest. Proceedings of Indian Parliament bear witness to the prevarications of the politicians of the ruling party in the matter of the arrest, release and extradition of Warren Anderson, former chief executive (CEO) of Union Carbide Corp (UCC), of US who faces criminal case in India for having caused industrial genocide in Bhopal and who is currently an absconder under Indian laws. There is documentary evidence accessed through Right to Information (RTI) that reveals that several of the serving ministers including an industrialist have wrongly argued that UCC’s inheritor, Dow Chemicals Co, US does not have any liability for the Bhopal genocide. Even the current leader of the opposition and a member of Parliament (MP) from Bharatiya Janata Party (BJP) and party’s spokesperson gave a written legal opinion along with Congress MP and spokesperson of the party to this effect. In the aftermath of Devyani Khobragade episode one wonders that had Indian politicians sought Anderson’s extradition and fixed the liability of UCC without resorting to uncalled for quid pro quo, such incidents of taking Indians and Indian officials for granted would not have happened.
Once again the sincerity of the statements made by political leaders across parties faces a litmus test as to whether it is an empty posturing meant only for public consumption when the election campaigns are underway or they are honestly concerned about safeguarding the prestige of the country and its national interest.
In a seemingly unrelated but relevant development, on 5 December 2013 Economic Times reported that India’s Intelligence Bureau (IB) has questioned issuing of UID/Aadhaar number to the foreigners and refugees from other countries. Notably, it is not clear as to how many citizens of the nine countries of the intelligence gathering alliance are currently residing in India. IB raised these objections on 6 November 2013 at a meeting of senior officials of the investigative agency, the home ministry and UIDAI. The UIDAI has argued that any non-resident Indian (NRI) or foreign citizen living in India can apply for Aadhaar since it is only meant for establishing identity and not citizenship.
This submission of UIDAI is an exercise in sophistry. The fact is that UIDAI is working with Election Commission of India to merge the electoral database with the Centralized Identity Data Repository (CIDR) of UID/Aadhaar numbers. Relying on prime minister’s patronage UIDAI appears to be taking even IB for a ride. Ministry of Home Affairs (MHA) is rightly arguing that since ultimately both CIDR of UIDAI and National Population Register (NPR) data of MHA is going to be collated the issue of citizenship is likely to get confounded. What is apparent is that this confusion is part of the design and not a product of default. IB is right in seeking background checks of private players involved with the UIDAI. It must be done before it is too late or before it becomes structurally subservient to foreign agencies due to the unfolding ‘solutions architecture’.
In the verdict of US District Court, Judge Richard Leon rules, “I cannot imagine a more "indiscriminate" and "arbitrary invasion" than this systematic and high-tech collection and retention of personal data on virtually every single citizen for purposes of querying and analyzing it without prior judicial approval. Surely such a program infringes on "that degree of privacy" that the founders enshrined in the Fourth Amendment. Indeed I have little doubt that the author of our Constitution, James Madison, who cautioned us to beware of "the abridgement of freedom of the people by gradual and silent encroachments by those in power," would be aghast.” Madison, the fourth President of USA is considered the father of US Constitution. The 68-page verdict is attached.
This verdict is readily applicable to the “indiscriminate” biometric and demographic databases being created in India by the Planning Commission’s UIDAI and MHA’s Registrar General & Census Commissioner for NPR besides National Intelligence Grid (NATGRID), the Indian incarnation of NSA. Framers of Constitution of India too would be “aghast” at such “systematic and high-tech collection and retention of personal data on virtually every single citizen for purposes of querying and analyzing it without prior judicial approval.” Indeed these initiatives along with the bitterly opposed proposal of National Counter Terrorism Centre (NCTC) and Goods and Services Tax (GST) Network constitutes “abridgement of freedom of the people by gradual and silent encroachments by those in power” in our country.
In an RTI reply dated 5 December 2013, UIDAI shared the contract agreement it signed on behalf of the President of India acting through Director General of UIDAI, Planning Commission, Government of India (which is the employer) on 17 March 2010 with the consortium consisting of Ernst & Young Pvt Ltd and Netmagic Solutions Pvt Ltd wherein ‘M/s Ernst & Young Pvt Ltd’ is the lead partner and Consultant. Both the RTI applications were filed by Qaneez-e-Fathemah Sukhrani, an urban affairs researcher. The contract agreement has page numbers only till page no. 26 but the rest of the pages which are appendices including description of services, clarifications of RFP dated 4 January 210 related to RFP, description of methodology, reporting requirements, total cost of services duties of the employer, teaming agreements with consortium partner/individual experts, RFP of UID CIDR Consultant issued by the employer and the pre-qualification, technical and commercial proposal submitted by the Consultant are not numbered.
The description of approach and methodology given the Appendix A: Part C dealing with Contract –UID CIDR Consultant contract agreement with Ernst & Young, a company based in UK, one of the alliance members of Five Eyes interestingly begins with the talisman of Mahatma Gandhi about pondering over how the poorest can get “control over his life and destiny” restored and will have us believe that this is its inspiration to participate in this initiative.
In an earlier RTI reply dated 25 October 2013, UIDAI shared that Ernst & Young order date was 26 February 2010 wherein the value of the contract was mentioned as Rs7.05 crore. The contract agreement with Ernst & Young states that “the Unique ID will be a random 12-digit number with the basis for establishing uniqueness of identity being biometrics”. It announces that “we will provide a Unique Identity to over 113.9 crore people.” This is evidently a fraudulent announcement because UIDAI with which the agreement has been signed has mandate to provide Unique Identity to only 60 crore residents of India and not to 113.9 crore people. The agreement states that it proposes to adopt political, economic, social, technology, legal and environment (PESTLE) framework to cover all key dimensions of the UID program. This framework merits attention for it tantamount to rewriting the political geography of the country with hitherto unknown consequences for political rights.
Most startling disclosure from the contract agreement is its admission that “biometric systems are not 100 % accurate”. It admits that “uniqueness of the biometrics is still a postulate.” In an admission that pulverizes the very edifice on which UID/Aadhaar and the NPR rests, it writes, “The loss in information due to limitations of the capture setup or physical conditions of the body, and due (to) the feature representation, there is a non-zero probability that two finger prints or IRIS prints coming from different individuals can be called a match.” The contract agreement underlines it in bold letters. There appears to be an attempt at verbal gymnastics to hide the key message here. In simple words, “non-zero probability that two finger prints or IRIS prints” turning out to be a match means that there is a probability that biometric data of two different individuals can be identical.
With this admission which is rooted in scientific evidence articulated earlier as part of this series, there emerges a compelling logic to abandon the exercise of creating database of biometric data for identification in favour of pre-existing 15 identity proofs on which Election Commission of India relies for elections and which has been giving legality and legitimacy to the Parliament and the Government of India.
It has been reported based on disclosures of Snowden that US and UK intelligence forces have hacked and planted spyware on more than 50,000 computer networks worldwide and their number is expected to reach over 85,000 by the end of 2013.
In view of the same, in place of counting the numbers of those residents of India enrolled/imprisoned under biometric Aadhaar and NPR at their own cost, national energy ought to focus on questions which have huge ramifications like:
Does the Parliament and State Assemblies know as to how many citizens of UK, US, Canada, Australia, New Zealand, Denmark, France, the Netherlands and Norway are currently residing in India at present? How many of them are non-traceable?
How many of them are within the country on a valid visa and a valid passport?
How many companies from UK, US, Canada, Australia and New Zealand are currently operating in India at present?
Are Indian agencies and citizens aware that the Five Eyes have “focused cooperation” on mining of computer networks with other countries like Belgium, Italy, South Korea, Turkey and others?
This alliance has the capability to directly access internet companies’ data, tapping international fibre optic cables, sabotaging encryption standards and standards bodies, hacking the routers, switches and firewalls that connect the internet together. The facts about their tentacles being present in these countries have been brought to light after the disclosures by Snowden.
Does the conduct of these countries and their companies serve India’s national interest?
Do the interests of these countries and companies converge with our interests?
In such a backdrop, instead of continuing with imperial initiatives like biometric Aadhaar and NPR that relies on the companies based in the countries who comprise five eyes alliance, government of India, Indian citizens and political parties need to deal with the attention diversion tactics of this alliance in a deeper and non-conventional manner to undo the harm done by their cyber and non-cyber Trojan horses. The verdict of US District Court against NSA merits the attention of Supreme Court of India when it hears the case against biometric identification based UID/Aadhaar.
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(Gopal Krishna is member of Citizens Forum for Civil Liberties (CFCL), which is campaigning against surveillance technologies since 2010)