5.1. Arguments in favor of Unified Supervision

♤ Fragmented supervision may raise concerns about the ability of the financial sector supervisors to form an overall risk assessment of the institution, operating domestically and often internationally, on a consolidated basis, as well as their ability to ensure that supervision is seamless and free of gaps. There are also group-wide risks that may not be adequately addressed by specialist regulators.

♤ As the lines of demarcation between products and institutions have blurred, different regulators could set different regulations for the same activity for different players. Unified supervision could thus help achieve competitive neutrality. (IRDA and SEBI collision on ULIPs)

♤ The unified approach allows for the development of regulatory arrangements that are more flexible. Whereas the effectiveness of a system of separate agencies can be impeded by ‘turf wars’ or a desire to ‘pass the buck’ or where respective enabling statutes leave doubts about their jurisdiction, these problems can be more easily limited and controlled in a unified organization. (example NSEL crisis)

♤ Unified supervision could generate economies of scale as a larger organization permits finer specialization of labor and a more intensive utilization of inputs and unification may permit cost savings on the basis of shared infrastructure, administration, and support systems. Unification may also permit the acquisition of information technologies, which become cost-effective only beyond a certain scale of operations and can avoid wasteful duplication of research and information-gathering efforts.

♤ A final argument in favor of unification is that it improves the accountability of regulation. Under a system of multiple regulatory agencies, it may be more difficult to hold regulators to account for their performance against their statutory objectives, for the costs of regulation, for their disciplinary policies, and for regulatory failures.