Financial Sector Conference

New Delhi
June 5-6, 2004

The conference brought together high level policy makers and practitioners from India, and experts from around the world (Australia, China, Hong Kong, Jamaica, Korea, Jamaica, UK, South Africa)  and colleagues from the IMF, IFC and the Bank,  to share country experiences on the relative merits and shortcomings of alternative models of financial regulation, and lessons on how to align regulatory regimes to country needs.

Plenary Session | Overview | Managing Transitions | Making It Work | Regulatory Arbitrage 

Participants | Risk Management | Financial Conglomerates | Market Conduct Regulation

The objective of the conference was to contribute towards clarifying the key directions for regulatory reform in India, and to provide some ideas to India’s policy makers and regulators as they gear up towards strengthening the country's financial regulatory architecture. The active participation of senior representatives from the Government of India and heads of the various financial regulatory agencies in India reflected the Indian authorities' growing interest in establishing a financial regulatory regime that is better equipped to cope with the country’s+ changing financial sector landscape.  

Previous conferences were held in Goa in 2002, and 1997.

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Conference Agenda and Presentations

Day 1 (June 5)

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Plenary Session

Welcoming Remarks
Michael Carter, Country Director for India, World Bank

Joseph Del Mar Pernia, Sector Director, Finance & Private Sector-South Asia, World Bank

Opening Address
N. S. Sisodia, Secretary, Financial Sector, Ministry of Finance, India

Structure and Overview of the Workshop
Alexander E. Fleming, Sector Manager, Finance and Private Sector Development, World Bank Institute

Priya Basu, Senior Financial Economist, South Asia Region, World Bank

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Session 1: Overview of Regulatory Structures

 Alternative Regulatory Structures
· Session Chair: S. Narayan, Economic Advisor,  Prime Minister’s Office, India 

· Regulatory Structure: Jeffrey Carmichael, former Chairman, Australian Prudential Regulation Authority       [paper]   [presentation, 196kb PowerPoint]

· Background Paper on Indian Financial Regulatory Structure, Susan Thomas, Assistant Professor, IGIDR and Praveen Mohanty, India Development Foundation  [paper, adobe pdf 101kb]

· Discussant: James Hanson, Senior Financial Policy Advisor, World Bank

· Discussant: Jayant Verma Professor of Finance, Indian Institute of Management, Ahmedabad

This session will provide a systematic overview of the regulatory structures found throughout the world and in India. What are the forces that have driven recent changes in regulatory structures? The presentation will address how conglomeration, regulatory arbitrage, and cost effectiveness have played a role in motivating change. Country experience has proven that there is no single ideal structure. Issues that are most relevant to supervisors in large countries—such as conglomeration—may not be as relevant to smaller countries, where issues such as concentrated ownership, concentrated wealth and foreign ownership of financial institutions are more critical. What are the strengths and weaknesses of the various structures?

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Session 2: Choosing an Appropriate Regulatory Structure

Making the Structural Decision—International Experiences
· Session Chair: Joseph Del Mar Pernia, Sector Director, Finance & Private Sector-South Asia, World Bank

·Australia’s Experience: Jeffrey Carmichael, former Chairman, Australian Prudential Regulation Authority                [paper]           [presentation, 152kb PowerPoint]

 · South Africa’s Experience: Andre Bezuidenhout, Head, Financial Stability Department, Reserve Bank of South Africa             [presentation, 177kb PowerPoint]

· UK’s Experience: Michael Taylor, Senior Economist, International Monetary Fund, Washington
                           [presentation, 41 kb PowerPoint]

This panel gathers supervisors from countries that have addressed the structural decision in recent years. They will review the process that was involved in making the decisions, whether by formal commission or departmental or governmental discussions; the issues that were considered; and the rationale for the particular structure that was finally chosen. The Session Chair will provide comments on the panelists’ experiences, relating them to the Indian context.

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Session 3: Managing the Transition to a New Regulatory Structure

The Speed of Change – Balancing the Risks
· Session Chair: Anand Bordia Member, Pension Fund Regulatory and Development Authority, India

· Issues in managing the transition: Alexander Fleming, Sector Manager, World Bank Institute
                        [presentation, 369kb PowerPoint]

· Korea’s experience: Seok-Keun Lee, Financial Supervisory Service, Korea
                        [presentation, 72kb]                       [paper]

· China’s experience: Wang Jun, Senior Financial Sector Specialist, East Asia Region
                        [presentation, 52kb PowerPoint]        [paper]

What lessons have been learned about the integration process? This panel will reflect on the risks involved in transition, and the issues that were considered in choosing a transition path to integration. The experiences vary widely from staged integration to full integrated in the midst of a financial crisis. The panelists will discuss the state of the economy at the time of transition, staff skills, training, and resource issues. Would they do anything differently if they were starting again? Following the panelists’ comments, the Session Chair will place these experiences in the Indian context.

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Day 2 (June 6)

Session 1:  Making Regulatory Structure Work

Issues in Making Regulatory Structures Effective
· Session Chair: Ranjit Bannerji, Joint Secretary, Department of Economic Affairs, Ministry of Finance, India

· “Strengthening Co-ordination Among Separate Regulatory Agencies,” David Knott, former Chairman, Australian Securities and Investment Commission     
                            [paper]

· “Communicating with Stakeholders,” Andre Bezuidenhout, Head, Financial Stability Department, Reserve Bank of South Africa 
                                   [presentation, 198kb PowerPoint]

· Discussant: P.A. Balasubramanian, Member (Actuary), Insurance Regulatory and Development Authority, India

Different regulatory structures pose different challenges for regulatory effectiveness. This session will provide an overview of some of the most important issues that policymakers and supervisors face. Each panelist will lay out his experience in building effective supervision in his own country. Issues to be addressed will include: How should policymakers resolve inconsistencies in underlying laws and regulations in order to make integrated regulation effective? How does a country with multiple supervisory institutions co-ordinate responsibilities effectively? How can a supervisor best communicate the nature, objectives and limitations of regulation to all stakeholders? How can officials and managers of supervisory agencies weld old cultures into a new culture following regulatory consolidation?

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Session 2:  Dealing with Regulatory Arbitrage in the Financial Sector

· Session Chair: Shyamala Gopinath, Executive Director, Reserve Bank of India
                  [paper]
  
· Presentation on India’s experience with regulation of NBFCs- Shyamala Gopinath, Executive Director, Reserve Bank of India      [paper, adobe pdf 237 kb]

· Dealing With Regulatory Arbitrage, Michael Taylor, Senior Economist, International Monetary Fund, Washington
                     [paper]                   [presentation, 40kb PowerPoint]

· Gayon Hosin, Division Chief, Financial Institutions Supervisory Division, Bank of Jamaica
                     [paper]

· Discussant:  Renu S. Karnad, Executive Director, HDFC Ltd.

· Discussant: T. T. Srinivasaraghavan, Managing Director, Sundaram Finance Limited

In many countries, financial services institutions—such as NBFIs—have rapidly developed where there have been loopholes in regulation, differences in licensing requirements, capital adequacy, or tax treatment. In some cases, these market innovations increase access to finance by reducing transaction costs or offering new services. But when  these industries develop to circumvent the intent of regulations, and compete in a largely unregulated field, the effect may be destabilizing to the financial system. How can policymakers and supervisors best respond to regulatory arbitrage? This panel will suggest various approaches, their risks and rewards.

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Session 3:    Integrated Risk Management from the Market Perspective

· Session Chair: UK Sinha, Joint Secretary, Ministry of Finance, India
 
· Evaluation and Supervision of Banks in Deregulated Real and Financial Markets, Nachiket Mor, Executive Director, ICICI Bank, India 
                    [draft paper, not to be quoted]

· Chris Matten, Executive Director, Financial Risk Management, PriceWaterhouseCoopers
                         [paper]               [presentation, 141kb PowerPoint]

· Discussant: Dimitris Tsitsiragos, Director, International Finance Corporation, India

· Discussant : Ajay Shah, Consultant, Ministry of Finance

Complex, cross-border financial transactions, and increasing use of derivatives, swaps, and other sophisticated financial instruments have made the work of risk management more challenging than ever. As the leading financial services firms invest in modern risk management systems, supervisors and regulators need to adapt their methods of assessing risk as well. This panel .will present the latest techniques in integrated risk management, and highlight the challenges that are facing financial supervisors.

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Session 4:  Regulation and Supervision of Financial Conglomerates

· Session Chair: Usha Thorat, Executive Director, Reserve Bank of India

· Gayon Hosin, Division Chief, Financial Institutions Supervisory Division, Bank of Jamaica
                        [paper]

· Uday Kotak, Executive Vice-Chairman and MD, Kotak Mahindra Group, India

· Discussant: V. Sridhar, Chairman, National Housing Bank

· Discussant:  Ranu Dayal, Vice-President and Director, Boston Consulting Group, New York

Fragmented supervisory systems have tracked the risks and behavior of particular financial industries. However, as several recent corporate crises have proven, crisis affects whole corporations—not just specific industries. How can supervisors best monitor conglomerates? What are the international best practices?

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Session  5:  Best Practices in Market Conduct Regulation

· Session Chair: G.N. Bajpai, Chairman, Securities and Exchange Board of India.

· Alexa Lam, Executive Director, Intermediaries and Investment Products Division, Securities and Futures Commission of Hong Kong                  [paper]

· David Knott, former Chairman, Australian Securities and Investment Commission
                       [paper]

· Discussant: Jayant Verma Professor of Finance, Indian Institute of Management, Ahmedabad

· Discussant: Ravi Narain, Managing Director, National Stock Exchange

How can supervisors and regulators ensure that financial markets are fair and competitive? This panel will gather leading supervisors to discuss steps they have taken in their own countries to strengthen market conduct regulation.

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Closing Session 

Observations and Next Steps, Vinod Rai, Additional Secretary, Financial Services,  Ministry of Finance, India   [remarks]

Concluding Remarks and Thanks, Michael Carter, Country Director, World Bank [remarks]