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 [email protected]
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operational head india
singapore media and channel group
in the country like india where customers are really fools and their interest is nevr taken into consideration the only motto of business house is to cheat their customers and govt interest is to earn as much as they can for their future generations that is reason why the sons and daughters of politician fight among themselves for power and moeny and end theri life
The rules are against small investors who rely on the name of the broker and are thus cheated.
Similar is the case with insurance companies
R P Shivkumar
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operational head india
singapore media and channel group
I have solid proof such my letters for issueing physical contract slips and ledger and holding statment and revocation of POA and margin fudning AND non issuance of Delivery insitruction booklet inspite of this the sebi nse bse are not taking the case this shows that these insitution are waste or infact our indian adminsitration is so weak that corruption at all levels inculding the adminsitrative services and this shows how weak is the indian govt and now we have decided to expose this episode of maladminsitration to international court to expose about indian adminsiteation before that we need moneylife support india infoline and reliance securities had cheated me we need jsutice
I would like to bring it the notice of Money life that NSE BSE SEBI Never do any justice to the individual investors even the IGRP meeting where the judges are unaware of the rules and regulations of the stock exchanges even what ever the rules they knew if they put forth to stock broking representative inspite of the stock broking firm representative accepting that they have not compiled the rules of the stock exchanges in front of the Exchange staff neither the exchange staff nor the IGRP judges have any authroity to issue show cause notice to broking firm we feel that these IGRP judges are those Advocates who donot have any practice and who loiter in the court complex for cases and they are in favour of broking houses for which they would be sufficently rewarded for softpeddaling the issue and more over the broking firms inspite of lapses on their side they try to use the Police force to keep the investors at check and as sn investor and affected person we request the moneylife to take this issue and restore justice to the client is humbly messaGe given to Madam Suchetra Dalal
why cannot the moneylife take this issue when we file an compliant in sebi or nse bse they appoint some advocates who donot w=have any knowledge about the subject and they say to go for arbitration when the case never warrants for arbitration but we can bring this episode to media lime light as our FM shri PC rightly said only 2% of the population are into the market if we bring that also that would also would vanish and inflation would crop to three digit as well wisher of indian economy and country we request RBI and MCA to look into matter and solve this issue before any catstrophe could take place
hai dayananda kamath the regulators main duty to brake the law framed by them because only the chairmans are appointed from the panel who are close to ruling party and who polish the shoes the politican and down below staff are govt employee either recurited by UPSC or CAT such as professional like CA MBA and other management institutions and they are bothered about their position and authroity and the stock broking house legal fertinity are mainly law brakers and these staff of sebi nse bse knew the law brakers inorder to get their personal benefit they softpeddal the issue and as such we feel that justice is denied in capital market sector as rightly said PC our FM where only 2% of the toatl population are into stock market that to would be washed in course unless justice is done as an international journalist and also an member of AAP we are now mobilising and movement to restore justice in capital market sector we need your supprot
Notwithstanding SEBI Chairman Sinha saying "Big or small, all culprits same."
Reminds me of what George Orwell wrote in his Animal Farm ".. but some are more equal than others." Like RIL challenging SEBI decision for not considering consent settlement to get away without admitting guilt!
CHairman of SEBI or RBI are appointed by the central govt who will abide by the rules and regulations of central govt and these officials IAS and IPS inorder to have their power and position they lic the shoes of politician this ia an pitiable condition in india even if there are any straight forward IAS or IPS officers they would be shuntted out to unimportant post and as such the constitution should be amended in such manner that Administration and Politics should be separated there should be apex body for Indian administrative service like an act passed in Parliament and they should be full pwoers like Election commission or Supreme court or CAG then only we can route out the corruption from india till then officals corruption and braking of rules and regualtions owuld be common we request moenylife fight for our cause hats off to them
operatrional head india
singapore media and channel group
the Indian capital market sector especially stock market and their controlling authorities like sebi nse and bse does not have any ethics or they are intrested in implemetning the law infact we can rightly say the law makers are the law brakers for firnge benefits they derive from the stock broking firms either monetary or non monmetary this is becuase when the unscurpulous politician who in their tenure of five years loot the country and officials who are guiding them in their loot are also tempted to loot and as such in indian adminstrative system earlier there was only saying that there is no accountability but in present scenario we can say there is no honesty no integrity and no morale because our legal system is so weak and prolonging issue that people attitude to forget the issue is rampant unless the media and channel continuously monitor its difficult even the organisation like money life who are fighitng for investors right are threatened by big stock broking houses and also from official missioneries from sebi nse and bse alos from MCA to softpeddal for future election if such is case where is question of justice is the case minority retail investors condition is pitable and among them is mine also hope after reading this we expect some justice otherwise only GOD should save our country from the cluthces of corruption and thsoe culprits should be taught an lesson which is happening in the current session in my case India infoline stock broking firm had cheated to exten of rs 25 crores and this case was dragging for eight long years without any clue and now NSEEL the Spot exchange had cheated IIFL to extent of rs 300 crore this is an official figure announced by IIFLbut unofficially it would have exceeded Rs 1500 crore to be frankly saying there is GOD above us who is watching all our activity and rightly punishes and this fitting example after learing this i request IIFL to consider and refund my rs 25 crore plus interst without further delay hope that would be done
If that is the condition of our courts the quasi judicial organisations are worse. In fact the Consumer 'courts' established under the Consumer Protection Act has actually turned the Act into Consumer Persecution Act! For some telling examples please read my blog at http://raviforjustice.blogspot.in/2011/1...
on a technical ground that the IAC "constituted a state" it was upheld but with strictures passed!
"Protecting consumers" is the least of the priorities of any of the service providers as also their multiple regulators who pay only lip services.
The govt. and the Planning Commission are seen only to multiply/increase the numbers of the so-called Regulators who have proven they are toothless tigers and watch dogs that can neither bark nor bite.
Even the Consumer Disputes Redressal Fora are no better than judicial courts - they blame lack of infrastructral support.
The poor aam admi consumer is left to fend for him/herself as the Members of the Regulators enjoy safe sinecures and perks!