Four regulators sign MoU to jointly supervise financial conglomerates

current affairs March 15th, 2013

The four financial sector regulators in the country- RBI, SEBI, IRDA and PFRDA have inked a Memorandum of Understanding (MoU) for co-operation in the field of consolidated supervision and monitoring of financial groups identified as financial conglomerates.

What is the need of such supervision? Financial conglomerates undertake a range of financial activities, including commercial banking, insurance, investment banking, equity broking, and pension business. Some examples of banking conglomerates are: State Bank of India, Punjab National Bank, Canara Bank, Bank of India etc.

In normal times these conglomerates will be an important resource for other financial intermediaries and end-users as facilitators of financial transactions and as a channel or counterparty for mitigating risk. However, through their linkages with domestic financial institutions and their salient role in markets, they also have the potential to be a source of domestic financial instability. Due to emergence of complex group structures, the consolidated supervision of financial conglomerates has acquired special significance.
Consolidated supervision does not mean to supervise each and every entity within a group but to supervise the regulated entity as a part of the Group, so as to take into account the likely risks that may arise from various parts of the Group for the supervised entity.

It has been observed in past that large and established international banks failed on account of the operations of their subsidiaries which illustrates the magnitude of such risks, which has elevated the supervisory concerns.

• The Financial Stability and Development Council (FSDC), has approved the National Strategy for Financial Education (NSFE). The NSFE has been revised in response to the feedback received from public consultations and from a global peer review.