Transparency in Financial Regulation

In May 2025, the Reserve Bank of India (RBI) released a policy framework for issuing regulations, following a similar move by the Securities and Exchange Board of India (SEBI) in February. These frameworks aim to introduce transparency, public participation, and accountability in rule-making by financial regulators, aligning India’s regulatory practices with global standards.

Progressive Steps in Regulatory Rule-Making

• Codified Procedures Introduced: RBI and SEBI have adopted formal procedures for issuing regulations, including mandatory public consultation for 21 days, periodic review mechanisms, and requirement for stating regulatory objectives.
• Impact Assessment Institutionalised: RBI must now conduct impact analyses considering the economic environment, while SEBI will clarify regulatory intent, improving policy predictability and public trust.
• Consultative Approach Initiated: The move marks a shift toward participatory governance, with both regulators now proactively engaging with stakeholders before finalising regulations.

Identifying Gaps and Areas of Enhancement

• Absence of Economic Rationale Clause: Unlike IFSCA or global counterparts like the US and EU, RBI and SEBI are not yet explicitly required to identify the economic rationale or market failure behind a proposed regulation.
• Need for Defined Cost-Benefit Mechanism: There is no formal mandate for conducting cost-benefit analyses in the new frameworks, which could weaken the efficiency and accountability of regulatory interventions.
• Lack of Monitoring Frameworks: Monitoring and evaluation processes are yet to be institutionalised at a defined frequency (as IFSCA mandates every 3 years), making impact measurement inconsistent.

Strengthening Regulatory Accountability

• Transparent Public Feedback Reporting Needed: Between 2014–15, RBI sought comments on only 4% of circulars and SEBI on less than 50%. To improve this, regulators must publish annual reports detailing consultations, responses, and final outcomes.
• Defined Review Timelines Essential: RBI and SEBI must specify time-bound review intervals for existing regulations, ensuring alignment with evolving market dynamics and reducing regulatory inertia.
• Call for Uniform Legislative Framework: A comprehensive law, akin to the S. Administrative Procedure Act, could standardise regulation-making across Indian regulators, reinforcing the rule of law and accountability.

Practice Question:

Discuss the significance of procedural reforms undertaken by RBI and SEBI in 2025 for enhancing regulatory transparency in India. How can these reforms be strengthened through institutional and legislative measures?