The existing legislative enactments do not bestow adequate powers on the regulator to make rules, to interpret rules, to investigate breaches of rules, to fine people for breaches of rules, and to keep and retain the fines in all areas which they are supposed to supervise. The essence of having an independent regulator within the flexibility to rule by regulation making ensures that matters which previously could be changed only with the consent of Parliament will be capable of being changed merely by a decision of the respective financial supervisory authority. There is quite properly a very lively debate about this. On the one hand there is much to be said for a flexible system. Legislation can never foresee all eventualities and, furthermore, legislation can never be perfect. Legislation in many cases cannot also be quick enough to correct market aberrations. In many areas sensible actions have been thwarted by faulty legislation. Often industry and regulators combine to try to get round unintended effects of legislation. Surely, according to this argument, it is far preferable if the regulation is as flexible as possible allowing regulators to take account of changing circumstances. Moreover, it is argued, one has to work with and trust the regulators and, if they cannot be trusted, then really it does not matter what sort of legislation one has.
But there is a contrary argument. No one doubts the motives, competence and qualities of the people at the top of the regulatory set up, but that can change. Moreover, sometimes major decisions can be taken some way down a regulatory body where perhaps the staff concerned does not have the broadminded approach of people at the top. If one wants to hear criticisms of any regulatory body, then people who work for other regulatory bodies and civil servants are often ready to oblige. There are a number of regulatory bodies operating today in India which are subject to criticism within government circles. Presumably the Insurance Regulatory And Development Authority, to which I belong, is not entirely immune from this danger at some time in the future.
Normally regulatory bodies are accountable by being subject to parliamentary approval for key variables, for example fees and levies, and they are also subject to a ministerial power of direction – ministers themselves being accountable to Parliament, or perhaps more nowadays to the media.