The regulators in the Indian Financial Market ensure that the market participants behave in a responsible manner so that the financial system continues to work as an important source of finance and credit for corporate, government, and the public at large. They take action against any misconduct and ensure that the interests of investors and consumers are protected.
The objective of all regulators is to maintain fairness and competition in the market and provide the necessary regulations and infrastructure. In this article, we’ll discuss the various Regulatory Bodies in Indian Financial System cover.
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The Securities and Exchange Board of India (SEBI) is a statutory body established under the SEBI act of 1992, as a response to prevent malpractices in the capital markets that were negatively impacting people’s confidence in the market. Its primary objective is to protect the interest of the investors, preventing malpractices, and ensuring the proper and fair functioning of the markets. SEBI has many functions, they can be categorized as:
Protective functions: To protect the interests of the investors and other market participants. It includes – preventing insider trading, spreading investor education and awareness, checking for price rigging, etc.
Regulatory functions: These are performed to ensure the proper functioning of various activities in the markets. It includes – formulating and implementing code of conduct and guidelines for all types of market participants, conducting an audit of the exchanges, registration of intermediaries like brokers, investment bankers, levying fees, and fines against misconduct.
Development functions: These are performed to promote the growth and development of the capital markets. It includes – Imparting training to various intermediaries, conducting research, promoting self-regulation of organizations, facilitating innovation, etc
To perform its functions and achieve its objectives, SEBI has the following powers:
The Reserve Bank of India (RBI) is India’s central bank and was established under the Reserve Bank of India act in 1935. The primary purpose of RBI is to conduct the monetary policy and regulate and supervise the financial sector, most importantly the commercial banks and the non-banking financial companies. It is responsible to maintain price stability and the flow of credit to different sectors of the economy.
Some of the main functions of RBI are:
The Insurance Regulatory and Development Authority of India (IRDAI) is an independent statutory body that was set up under the IRDA Act,1999. Its purpose is to protect the interests of the insurance policyholders and to develop and regulates the insurance industry. It issues advisories regularly to insurance companies regarding the changes in rules and regulations.
It promotes the insurance industry but also controls the various charges and rates related to insurance. As pf 2020, there are about 31 general insurance and 24 life insurance companies in India, who are registered with IRDA.
The three main objectives of IRDA are:
Some important functions of IRDA are:
The Pension Fund Regulatory and Development Authority (PFRDA) is a statutory body, which was established under the PFRDA act, 2013. It is the sole regulator of the pension industry in India. Initially, PFRDA covered only for employees in the government sector but later, its services were extended to all citizens of India including NRI’s. Its major objectives are – to provide income security to the old aged by regulating and developing pension funds and to protect the interest of subscribers to pension schemes.
The National Pension System (NPS) of the government is managed by the PFRDA. It is also responsible for regulating custodians and trustee banks. The Central Record Keeping Agency (CRA’s) of the PFRDA performs record keeping, accounting and provides administration and customer services to subscribers of the pension fund.
Some functions of PFRDA are:
The Association of Mutual Funds in India (AMFI) was set up in 1995. It is a non-profit organization that is self-regulatory and works for the development of mutual fund industry by improving professional and ethical standards, thus aiming to make the mutual funds more accessible and transparent to the public. It provides spreads awareness vital information about mutual funds to Indian investors.
AMFI ensures smooth functioning of the mutual fund industry by implementing high ethical standard and protects the interests of both – the fund houses and investors. Most asset management companies, brokers, fund houses, intermediaries etc in India are members of the AMFI. Registered AMC’s are required to follow the code of ethics set by the AMFI. These code of ethics are – integrity, due diligence, disclosures, professional selling and investment practice.
The AMFI updates the Net Asset Value of funds on a daily basis on its website for investors and potential investors. It has also streamlined the process of searching mutual fund distributors.
The Ministry of Corporate Affairs (MCA) is a ministry within the government of India. It regulates the corporate sector and is primarily concerned with the administration of the Companies Act, 1956, 2013 and other legislations. It frames the rules and regulations to ensure the functioning of the corporate sector according to the law.
The objective of MCA is to protect the interest of all stakeholders, maintain a competitive and fair environment and facilitating the growth and development of companies. The Registrar of Companies (MCA), is a body under the MCA that has the authority to register companies and ensure their functioning as per the provisions of the law. The issuance of securities by the companies also comes under the purview of the Companies Act.
The RBI prints currency and distributes it across the country. It also manages the country’s foreign exchange reserves. It sets interest rates for banks to lend, thus controlling credit.
The SEBI is the capital market watchdog. It protects investors as well as regulates how the exchanges and capital market functions. It levies fines and punishments on bad actors. It has the power to change laws on the stock exchanges’ functioning. It can conduct hearings and pronounce judgments on cases.
The IRDA keeps tabs on the country’s insurance sector. It regulates insurance premiums as well as the products that companies offer customers. One of its primary functions is complaint redressal.
The PFRDA regulates the pension fund sector. Its main objective is income security for senior citizens, and it regulates how the pension funds can invest their monies. Its brief includes increasing awareness of pension schemes in the country.
The MCA sets up the rules and regulations for the lawful functioning of the corporate sector.
The AMFI is a non-statutory body set up to ensure best practices in the mutual fund sector. Its main aim is the development of the mutual fund industry in the country.
In this article, we discussed the Regulatory Bodies in Indian Financial System. There are many regulatory organizations in India that ensure the smooth functioning of the financial system.
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