Page 269 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Personal Financial Planning

Notes the contrary allows growth as well as freedom to operate subject to fulfillment of certain
conditions. Despite strict regulations, the industry has recorded high level of growth all
over the world and efficiency and innovation are the key to the success of the industry.
Thus the objectives of the regulations are to ensure orderly growth of the industry, protecting
the investors and other participants of the markets and using the industry for the
development of the economy.

The regulations can be broadly classified into structural regulations, prudential regulations
and investor protection regulations. While the structural regulations cover the main types
of activities that different forms of institutions are permitted to engage in, the prudential
regulations aim to ensure capital adequacy, liquidity and solvency of the institutions. The
investor protection regulations are designed to protect the investors from the frauds,
malpractice and collapse. There are three forms of regulations that govern the financial
industry. At the macro level, the legislation passed by the Parliament gives a general
regulatory framework and stipulate the government agency which is in charge for
administrating the provisions of the Act.

The regulatory agencies set up by the government like SEBI frame several regulations at
micro level and these regulations, guidelines and notifications constitute the second form
of regulation. The third form of regulation is in the nature of self-regulation where the
industry association frames the operating system of the industry, code of conduct to their
members and procedure for settling the dispute between the members.
The Banking Regulation Act, 1949, Insurance Act, 1938 and Securities Contracts (Regulation)
Act, 1956 provides macro level regulation on banking, insurance and securities markets
transactions. The Reserve Bank of India, Insurance Regulatory Authority and Securities
and Exchange Board of India are the major regulators of the industry. They have issued a
number of regulations, guidelines, notifications, clarifications, etc., that govern the
activities of the financial service providers. The stock exchanges, Merchant Banking
Association, Foreign Exchange Dealers Association, Equipment Leasing Companies
Association, etc., have formed separate by-laws and regulations that govern their members.
All these regulations play a vital role for the development of the financial service industry.

14.9 Keywords

Banking Regulations: Consisting of Banking Regulation Act, 1949 and Directions from the
Reserve Bank of India, govern the activities of the banking companies.
Insurance Regulatory Authority (interim): It was set up in 1996 based on the recommendations
of the Malhotra Committee primarily to regulate, promote and ensure orderly growth of the
insurance business in a free market economy.
Investors’ Protection Regulation: It determines the nature and level of disclosure to be made by
the financial service providers to the investors.
NBFC Regulations: These are those directions given by the RBI to regulate different forms of
non-banking financial companies.

Prudential Regulation: It covers the internal management of financial service providers in
relation to capital adequacy, liquidity and solvency.
SEBI: A statutory body that regulate the securities markets and their participants with a main
objective of protecting the interest of investors.
SEBI Regulations: Set of regulations and guidelines issued by the SEBI on various investment
institutions and market intermediaries.

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