Financial Regulatory Bodies in India - RBI, SEBI, MCA, IRDAI

Post graduate in Management, ex-Citibanker, Writer. Worked in banking and financial services in various business roles and writes about investments and personal finance with Rupeezy.

02 August 202410 min read

Indian financial markets have evolved over the years under the watchful eyes of financial regulatory bodies in India. India's financial system is diverse and complex with multiple government and private entities, such as banks, non-bank financial institutions, insurance firms, capital markets, and corporations. Regulators play a crucial role in maintaining the stability and integrity of the financial system. In this article, we’ll discuss the role of regulatory bodies of the Indian financial system in safeguarding consumer interests and overseeing frameworks that promote economic growth.

What are the Financial Regulatory Bodies in India?

The government sets up financial regulatory bodies to supervise and regulate a specific financial system or body e.g. banks, capital markets etc. These regulatory bodies work as per specified norms and frameworks while having the authority to implement rules, monitor adherence, impose restrictions, and take penal actions when laws and regulations are not complied with.

In an interconnected and digital economic landscape, regulators place barriers against financial malpractices. The financial regulatory bodies in India work towards a few key goals:

Stability in the Financial System:

The primary role of regulators is to ensure stability in the financial system with proper implementation of processes, laws, and regulations.

Protection of Consumer’s Interest:

The goal of setting up regulatory systems is to protect the end user or consumer’s interest from financial manipulation, malpractices, and systemic issues.

Prevent Fraudulent Activities:

Regulators put stringent laws and filters to prevent financial crimes and fraudulent activities at all levels.

Public Trust:

Robust and safe financial systems evoke confidence and public trust in a country’s financial systems and economic potential.

List of Financial Regulatory Bodies in India

The key financial governing bodies in India are:

1. Reserve Bank of India (RBI)
2. Securities Exchange Board of India (SEBI)
3. Insurance Regulatory and Development Authority of India (IRDAI)
4. Ministry of Corporate Affairs (MCA)
5. Pension Fund Regulatory and Development Fund (PFRDA)
6. National Housing Bank (NHB)
7. Forward Markets Commission (FMC)
8. Insolvency And Bankruptcy Board Of India (IBBI)
9. Association of Mutual Funds in India (AMFI)

Financial Governing Bodies in India - Roles and Responsibilities

Let us discuss the role each regulatory authority plays in governing the overall financial system.

Reserve Bank of India (RBI)

Set up in 1935, RBI is the country's central bank and supervises the banking system. RBI works under the Ministry of Finance and acts as the government's bank. It is responsible for currency management, monetary policy supervision, and forex and serves as a lender to commercial banks. Here are RBI’s main functions:

Monetary Authority

• RBI formulates, implements, and monitors the monetary policy.
• Its key role is to maintain price stability while keeping in mind the objective of growth.

Regulator and Supervisor of the Financial System

• RBI prescribes broad parameters of banking operations within which the country's banking and financial system functions.
• The key objective is to maintain public confidence in the system, protect depositors' interests, and provide cost-effective banking services to the public.

Manager of Foreign Exchange

• The central bank manages the Foreign Exchange Management Act, 1999.
• It aims to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

Issuer of Currency

• RBI Issues, exchanges, and destroys currency notes as well as put coins in circulation minted by the Government of India.
• The key objective is to supply adequate currency notes and coins of good quality.

Developmental Role

• RBI performs a wide range of promotional functions to support national objectives.

Regulator and Supervisor of Payment and Settlement Systems

• Introduces and upgrades safe and efficient modes of payment systems in the country to meet the requirements of the public.
• The goal is to maintain public confidence in the payment and settlement system

Related Functions

• Banker to the Government: RBI performs merchant banking functions for the central and the state governments; and also acts as their banker.
• Banker to Banks: RBI maintains banking accounts of all scheduled banks.

Securities Exchange Board of India (SEBI)

Established in 1988, SEBI is a regulatory body that oversees and monitors the securities market in India. It plays the following roles in development and regulation of the securities market in India.

Regulatory Function

• SEBI regulates different players in securities markets e.g. stock brokers, institutions, intermediaries, merchant bankers, foreign investors, listed companies, etc. to ensure all transactions are transparent and fair and in adherence to rules.
• SEBI also conducts regular monitoring, audits, and investigations to prevent any illegal activities or malpractices like insider trading, and takes disciplinary action accordingly.
• SEBI also regulates mutual funds , credit rating agencies, and foreign investments in the market by ensuring that they comply with guidelines for registration, management, and conduct. SEBI monitors their functioning and takes punitive action against violations.

Market Development

• One of SEBI’s key roles is to develop securities markets through various initiatives like promoting investor education and building awareness about risks and rewards.
• SEBI is instrumental in launching new products, building interest to bring institutions and foreign investors, and promoting technology and digital capability in markets.

Investor Protection

• SEBI plays an important role in safeguarding every investor’s interest by implementing stringent laws and regulations.
• SEBI places checks and measures so that market players provide transparent, accurate, and complete information to investors about products and services, risks, and terms clearly.

• SEBI also keeps a watch on any activities like insider trading, front running , etc. to manipulate the market and hurt investors at large.

Market Transparency

• Securities markets involve complex data and information. SEBI directs listed companies and IPO bound companies in primary and secondary markets to make required disclosures and present company/product details with complete transparency.

Market Breadth & Depth

• SEBI dons the role of developing the markets by introducing new and sophisticated products in the markets e.g. equity derivatives, algorithmic trading, etc. For example, SEBI recently launched derivatives on its popular Nifty Next 50 index.
• SEBI encourages SMEs and new companies to participate in the markets with norms to deepen the markets.

Corporate Governance

• Since its inception, SEBI has taken steps to introduce Indian corporate governance processes in line with the international norms followed by developed economies.

For example, SEBI revised listing agreements in Clauses 35B and 49 to make governance more effective and strict in defending the interests of all stakeholders. It is now applicable to non-listed companies as well.

Insurance Regulatory and Development Authority of India (IRDAI)

IRDAI is a statutory body formed for the overall supervision and development of insurance sector in India.

The key objective of IRDAI is to protect the interest of policyholders, promote the growth of the insurance industry, ensure speedy settlement of genuine claims and effective grievance redressal mechanism, and promote fairness, transparency, and orderly conduct in financial markets. The key responsibilities of IRDAI are:

• Certify Insurance Companies: Issue certificate of registration, renew, modify, withdraw, suspend, or cancel registration of applicants.

• Protect the Interest of Policyholders: Protect policyholders’ interest in terms of policy issuance, nomination, insurable interest, claim settlement, surrender value of policy, and other terms and conditions.

• Adjudication of Disputes: Settle disputes between insurers and intermediaries or insurance companies.

Promotion and Regulation:

• Promoting efficiency in the conduct of the insurance business
• Promote and regulate professional organisations connected with the insurance and reinsurance business
• Control and regulation of the rates, advantages, terms, and conditions that may be offered by insurers

• Regulating investment of funds by insurance companies

Ministry of Corporate Affairs (MCA)

The Ministry of Corporate Affairs handles the administration of the Companies Act, Limited Liability Partnership Act & other rules & regulations to regulate the functioning of the corporate sector in accordance with the law.

The Ministry also oversees the Competition Act to promote and sustain competition in markets and to protect the interests of consumers.

Alongside, it supervises the three professional bodies, the Institute of Chartered Accountants of India(ICAI), the Institute of Company Secretaries of India(ICSI), and the Institute of Cost Accountants of India (ICAI). The Ministry also carries out functions of the Central Government relating to the administration of the Partnership Act, the Companies (Donations to National Funds) Act, 1951, and the Societies Registration Act.

Pension Fund Regulatory and Development Fund (PFRDA)

PFRDA regulates the NPS (National Pension Scheme) ecosystem. PFRDA’s key role is to promote old-age income security by establishing, developing, and regulating pension funds to protect the interests of the subscribers of pension funds.

Functions of PFRDA

• It educates subscribers and the general public on issues relating to pension, and retirement savings and trains intermediaries.
• Provides pension schemes and protects the interests of NPS subscribers and such other schemes
• Approves the schemes and issue investment guidelines for pension schemes.
• Registers and regulates intermediaries NPS Trust, Points of Presence, Central Recordkeeping Agency, Trustee Bank, Pension Funds, Custodian, etc for timely service and cost-effectiveness.
• Oversees grievance redressal process, to make it robust & time bound.
• Adjudicates disputes between intermediaries and subscribers.

National Housing Bank (NHB)

NHB was set up in 1988 as an autonomous housing finance institution to promote housing finance institutions and to equip them with financial and other support.

The key roles NHB plays are:

• Promote a sound, healthy, viable, and cost-effective housing finance system for all segments of the population and integrate the housing finance system with the overall financial system.
• Promote a network of dedicated housing finance institutions to adequately serve various regions and different income groups.
• To supervise the activities of housing finance companies to ensure fair conduct.

Forward Markets Commission (FMC)

The Forward Markets Commission (FMC) is the regulatory body for the commodity market and futures trading market in India. It is a division of the SEBI. The key roles of FMC are:

• It regulates operators to prevent the systemic risk of default
• It ensures that futures prices are truly aligned with the prospective demand and supply
• It aims to protect & promote the interest of consumers /non-members.

Insolvency And Bankruptcy Board Of India (IBBI)

Setup in 2016, The Insolvency And Bankruptcy Board Of India (IBBI) is responsible for administering and regulating the Insolvency and Bankruptcy Code (IBC) of India. It plays a key role in the economy and corporate sector as the performance of businesses is intertwined with the performance of the overall economy.

• It ensures timely resolution of insolvency and bankruptcy cases with ease and within the stipulated time.

• The IBBI has regulatory oversight over professionals and related institutions - Insolvency Professionals (IPs), Insolvency Professional Agencies (IPAs), Insolvency Professional Entities (IPEs), and Information Utilities (IUs) - in the insolvency space.
• It has the responsibility to make regulations and guidelines on matters relating to insolvency processes.

Association of Mutual Funds in India (AMFI)

AMFI is a non-profit industry body of the asset management companies (AMCs) of all Mutual Funds in India. Incorporated in 1995, AMFI is dedicated to developing the Indian Mutual Fund industry on professional, healthy, and ethical lines.

Its key responsibilities include

• Resolving the issues concerning the mutual fund industry, facilitating ease of doing business for its members, investors, and various stakeholders
• Liaison with the SEBI/ RBI and government on policy matters concerning the mutual fund industry

• Introduce best practices for all AMCs to be followed uniformly as industry norms.

• Share important information e.g. daily NAVs, performance of all MF schemes, and other useful data about MF Industry on AMFI website
• Create awareness to educate and protect investors about mutual funds through media

Conclusion

Financial markets are the backbone of any economy. They provide liquidity, ensure the flow of capital between participants, avenues for capital and wealth creation, credit offtake, and platform for trade and business to grow.

Regulators augment the growth of financial markets by providing frameworks and rules for all participants to function in a fair and transparent manner. Regulatory policies safeguard investors’ interests and prevent systemic failures. A robust regulatory process is the foundation of resilient and stable financial markets.

Key Points

• RBI is the central bank of the country that controls the national currency, forex, credit supply, monetary policy, inflation, and overall stability of the country’s banking and financial system.

• SEBI is the regulatory authority for securities markets to ensure the protection of investors’ interests and maintain fair and transparent practices in the markets.

• IRDA oversees the insurance market in India, regulates the functioning of insurance companies, and protects policyholders' interest.

• PFRDA regulates the pension sector by promoting retirement savings, overseeing pension fund management, and preventing malpractices.

• MCA administers the functioning of the corporate sector and businesses as per laws.

• NHB is the apex body for governing the housing finance sector by promoting housing finance and enhancing the reach of the sector.

• AMFI is a non-statutory body that represents the association of mutual funds in India.

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