Pointing to the risk of regulatory arbitrage, the Reserve Bank of India (RBI) on Thursday said the issue of multiple regulators for non-banking entities needed addressing soon.
Because of the diverse profile of NBFCs, these entities come under multiple regulators. So, there arises a possibility of systemic risk from the various operations they undertake, including distribution of insurance products, mutual funds, investment in capital market.
With multiple regulators, RBI said there are chances of gaps in regulation, since a lot of activities taken up by merchant banks, portfolio managers and brokerages are not being subject to prudential regulation.
Bancassurance, for instance, a form of selling insurance products through banks and NBFCs, is one function that comes under the RBI, as well as the Insurance Regulatory and Development Authority. Capital market investments by banks and NBFCs are other common instances of regulatory arbitrage. Apart from the RBI, the Securities and Exchange Board of India (Sebi) comes into the picture, too.
The recent spat between SEBI and IRDA over ULIPs was another example of jurisdictional battle.
For more on this, refer Business Standard
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