COBCAM 2017: ECHO: Panel Discussion on “Has excessive regulation in the financial markets disrupted the risk and reward equation?”

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Mr. Supreeth Shankarghal, Hedge Fund Manager, Novo Investments

Mr. Shankaghal kept it simple by stating that regulation is necessary albeit many may not like it. He said that regulation is definitely needed but was unsure if it is excessive. According to him, the current regulation hasn’t been updated. He quoted that “Present regulation is like a speed-breaker, it should be like a speed-camera”.

Further, he elaborated that today taking excessive risk is taken for granted. He believes that there should be more stringent rules instead of large laws which people are unable to understand. He stated that regulation is required not only in capital markets but also in places where investors start investing money. He said that SEBI should work on reducing unnecessary paperwork. Regarding multiple regulators, he said that they are unavoidable but there should be a cooperation between the regulators.

He concluded that algorithmic trading and other advances have kept regulators somewhat incompetent to do proper regulation.

Mr. Nilanjan Das, Deputy Head Asset Management and Wealth Management, Deutsche Bank

Mr. Nilanjan Das expressed concern over the numerous complicated regulations on the market. He laid emphasis on protecting the investors and the customers regardless of the risk environment. He stated that the implementation of current regulations increases operational costs and that more research is needed in the development of a system to estimate risk and return. This will not only save the financial system from incurring unnecessary costs but will also help make the banking system more transparent. The development of such a system will also help price risk according to the customer’s terms.

Mr. Nilanjan Das stated that regulations are the way of life in the fiduciary financial industry. Since there is immense trust between the dealings of the industry and its customers, investors and other stakeholders, he believes regulations are of paramount importance. He also emphasized on the susceptibility of Indian banks to be liable to Federal Laws thanks to the importance of regulatory laws and citizen protection laid down by their financial system. He believes the major factors of regulation in play are the size of the regulation and the smartness with which we handle them.

Mr. Mahesh Chhabria, Vice President (New Projects), SBI Mutual Funds

Mr. Mahesh started the discussion by giving an overview of financial regulations. He said that financial regulations regulate financial stability. Further, these regulations should be optimum, neither too strict nor too lenient, given the state of various other factors involved.

According to him, the government is taking a stance towards outdated regulations and improvising them with several changes, which is adding more and more value to the system. Having said that, he cited that regulator should stand at the signal, not after the signal. Having worked at mutual fund investment, he provided some insights into the industry and its regulatory impacts. Mutual fund industry involves a high market risk, wherein the risk determines the reward. In such a scenario, the role of a regulator is to protect the interests of a retail investor. A regulator should be the advisory for the investor, looking into the risks and rewards associated with his investments. Also, long term investments should be supported by the regulator, taking calculated steps at each point.

Mr. Mahesh ended the discussion by quoting that these regulations are meant to make sure that you apply the break at the correct time.

Mr. Bharat Gupta, Vice-President, Northern Trust

Mr. Bharat Gupta began the discussion by quoting the fact that ever since the regulations have been put, Asset Quality Review has been started. He said, “We are at a point where regulations should be enablers”. These compliance regulations require lots of clean-ups and hence a balance between the time spent and these clean-ups is very important.

He continued the discussion by saying that there is no doubt that these regulations have improved the banking services but currently, it is being overdone.

Moving on, Mr. Gupta gave an example of Financial Analytics Companies. He said that there may be occasions that capital available is scarce; this may lead to charging higher than the consumer’s tolerance limit. Thus, a balance is required to be maintained so that business is not lost. For example, if a customer is a high risk to the firm, he should be handled accordingly. This will help firms in attaining competitive advantage.

 

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