The Future Of Financial Regulation - Domestic Laws And Regulations In India
Author: LawSphereX
Category: Banking & Finance
Published:
Updated:
THE FUTURE OF FINANCIAL REGULATION: DOMESTIC
LAWS AND REGULATIONS IN INDIA
Mitali Patel, Unitedworld School of Law, Karnavati University, Uvarsad Adalaj Road, Gandhinagar, Gujarat, 382422 Dr Mayura Sabne (Faculty), Unitedworld School of Law, Karnavati University, Uvarsad Adalaj Road, Gandhinagar, Gujarat, 382422
ABSTRACT
Financial markets are changing at a fast pace with globalization and emerging technology, and hence financial regulation has become more complex and important. This paper looks at the future of financial regulation by contrasting international standards and local regulations, in the general context of global governance. It explores how financial regulatory systems have changed, important international standards like the Basel Accords and FATF standards, and important local regulations in major economies like the United States, European Union, India, and China. The paper finds important challenges like regulatory arbitrage, geopolitical tensions, and the tension between national control and international agreement.
The paper also talks about emerging trends like regulating fintech, cryptocurrencies, central bank digital currencies (CBDCs), and environmental, social, and governance (ESG) standards. Finally, the paper highlights the need for a more flexible, cooperative, and technology-friendly regulatory system that can protect global financial stability while catering to local needs.
1. Introduction:
“Efficient financial systems are key to economic growth, as they enhance the allocation of resources, reduce transaction costs, and provide mechanisms for risk management. ” With changing time and globalised economy the financial sector or financial market has become more and more wide and complexed. Financial regulation plays an important role in global financial system. It comprises of multiple framework of policies, rules and regulations. These are designed in a manner that financial markets and institutions can be regulated. And as these markets are becoming interconnected and the need for efficient and effective framework is very important. The moment one financial institution fails it triggers risk across the entire financial systems.
Due to this fragile and dynamic nature of financial market, regulatory bodies are tasked to oversee the market and ensuring the compliance with established standards. The primary aims of financial regulation include Market Confidence, Financial Stability, Consumer Protection, Reduction of Financial Crime, Regulation of Foreign Participation. 1 These reforms aim to create a more macro-prudential approach to regulation, addressing vulnerabilities across the entire financial system rather than focusing solely on individual institutions. 2 By establishing clear rules it promotes transparency in the market leading to effective cross-border transactions. Effective regulation fosters trust among investors and consumers, which is vital for encouraging participation in financial markets and supporting economic growth. 3 Its origin could be traced in early Europe.
In India, when banking regulation were being operated i. e. when RBI was established showed a sign for financial regulation. In the UK, in the years 1986–7, three new Acts were passed involving major changes in the regulatory framework for the financial system; the Building Societies Act 1986, the Financial Services Act 1986 — establishing an entirely new regulatory authority, the Securities and Investments Board (SIB), and an accompanying extended regulatory system — and the Banking Act 1987. 4
1 Labonte M, ‘Who Regulates Whom? An Overview of the U.S. Financial Regulatory Framework’ (2023)
R44918 2 Alexander K, ‘Global Financial Governance’ (2015) 3 Avgouleas, E 2013, 'Effective Governance of Global Financial Markets: An Evolutionary Plan for Reform', Global Policy, vol. 4, no. Supplement 1, pp. 74-84. https://doi.org/10.1111/1758-5899.12041
4 Goodhart CAE, ‘Financial Regulation’ in CAE Goodhart (ed), Money, Information and Uncertainty
(Macmillan Education UK 1989)
With the passage of time financial regulation have evolved a lot. They were shaped by various historical events, need for consumer protection and the economic crises. Every country has its own story line for the evolution. In United States, these regulations evolved from time it was being found. Their constitution makers had a discussion regarding how to regulate financial activity. The first major regulatory body, the First Bank of the United States, was chartered in
1791 but faced opposition, leading to a lack of uniform regulation for many years followed by
the National Banking Act of 1863 established a system for issuing federal charters to commercial banks and created the Office of the Comptroller of Currency (OCC) to supervise them. 5 Along with this the Great Depression which was struck in 1930s also played an important role in shaping the rules and regulation. Due to this depression multiple bank had failed in their services leading to economic crisis. In order to curb these crisis significant reforms were being implemented. The Securities Act of 1933 and the Securities Exchange Act of 1934 established the Securities and Exchange Commission (SEC) to oversee securities markets and protect investors, additionally, the Glass-Steagall Act was enacted to separate commercial banking from investment banking, aiming to reduce conflicts of interest and prevent excessive risktaking by financial institutions.
6 The transition from 20th century to 21st century saw multiple wave of deregulation, repeal of act or parts of act. And due this deregulation the 2008 financial crisis arise leading to need of revaluating these frameworks again. The Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted in 2010 to address systemic risks and enhance consumer protection by imposing stricter regulations on banks and financial institutions. 7 In India, these regulation had its root since British time. They had established various banks like Bank of Bengal in 1806 and a central bank RBI in 1935. Post-Independence Banking regulation act 1949 was reformed to look after regulation followed by SEBI in 1988, a significant step taken towards securities market.
5 Komai A and Richardson G, ‘A Brief History of Regulations Regarding Financial Markets in the United States: 1789 to 2009’ (National Bureau of Economic Research, September 2011) 6 ‘The History of Regulating the Financial Markets | StreetFins®’
7 Supra note 6
1.1 Overview of India's financial regulatory framework:
India's financial regulatory system is a sophisticated system that is designed to enable the stability, efficiency, and integrity of India's financial markets. The system is regulated by a range of important regulatory institutions, each tackling a particular aspect of the financial system. The Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), and the Insurance Regulatory and Development Authority of India (IRDAI) are among the primary regulators, working together to maintain financial stability, protect consumers, and promote economic growth. 8 The RBI, as the central bank, looks after monetary policy, regulation, and supervision of banking so that banks and other financial institutions operate soundly and securely.
9 SEBI regulates the securities market, protecting investors and maintaining market integrity by controlling rules against insider trading and other malpractices. 10 IRDAI regulates the insurance sector, laying down standards for insurance companies and protecting policyholders. 11
1.1.1 Overview of Financial Regulatory Bodies:
RBI: It is central bank of India. It looks after banking rules and regulations, its supervision etc. It oversees commercial banks, non-banking financial companies (NBFCs), and other financial institutions.12 • SEBI: It looks after securities market and interest of investors. It makes sure that market is working on fair basis without any prejudice. • IRDAI: It looks after the standards in the insurance companies and ensures that policy holders are not being exploited. • PFRDA: It regulates pension funds. It ensures stability of pension system by encouraging
8 ‘Financial Regulation in India’, Wikipedia (2025)
9 ‘Financial Regulatory Bodies in India - Check Major Regulators in India’ (Groww)
10 Supra note 9
11 ‘Financial Regulatory Bodies in India: Meaning, Types, & Objectives!’ 12 ‘Financial Regulatory Bodies’ (SATHEE)
people towards retirement savings.
1.2 Reserve Bank of India (RBI):
In 1935 history of FR changed. Upon the recommendation of Hilton Young Commission Report Reserve Bank of India (RBI) was established13. The idea behind RBI was the need for central bank for maintaining financial stability. Its primary function was to act as a regulatory authority, managing monetary policy, and acting as last resort lenders. It became a turning point in the Indian financial system by creating a regulatory framework and safeguarding financial stability.
1.2.1 History:
After world war I India was facing multiple economic challenges. In order to address these challenges Reserve Bank of India (RBI) was established under RBI Act, 1934. 14 The concept of a central bank in India was influenced by Dr. B. R. Ambedkar's book "The Problem of the Rupee – Its Origin and its Solution," and its establishment was based on the recommendations of the Hilton Young Commission in 1926. Initially, the RBI was privately owned, but it was nationalized in 1949, and since then, it has been fully owned by the Government of India. 15 Since it was being a central bank of india it was assigned with duties relates to issue of currencies and maintain balance in the financial market. It took over the functions of the Controller of Currency and the Imperial Bank of India, becoming the banker to the government and the manager of public debt.
16 It was not always situated in Mumbai, earlier it was located in Calcutta. Before nationalization, the RBI was a privately owned entity with its share capital divided into shares owned by private individuals and institutions, and with the Reserve Bank of India (Transfer to Public Ownership) Act, 1948, the ownership was transferred to the government, making it a fully government-owned entity by 1949. 17
13 RBI History - Brief History, 2015
14 Preamble, THE RESERVE BANK OF INDIA ACT, 1934
15‘Reserve Bank of India’
16 ‘RBI: History and Interesting Facts about the Statutory Body’ The Times of India (5 March 2024)
17 Team NI, ‘Reserve Bank of India (RBI): Origin, Structure, Functions & More’ (8 April 2024)
After nationalization, the RBI became an important pillar of India's economic growth, especially in industry, agriculture, and finance. It assisted the government of India’s economic policy by means of priority sector lending and banking system regulation. The RBI also introduced a deposit insurance scheme in 1961 as a step to bring back the banking system. The RBI's regulatory role grew immensely following the nationalization of the big commercial banks. It became the leading institution for regulating and governing the public banking system, framing policy on reserve requirements and interest rates.
1.2.2 Monetary Policy:
It is the RBI's task to frame and implement the monetary policy so that desired economic outcomes like the control of inflation and economic development are realized. • Its major aims are price stability with growth support, money supply management, and maintaining the necessary availability of credit to growing sectors of the economy. • The RBI employs certain tools to put through monetary policy like the fixing of interest rates (repo and reverse repo rates), changing reserve requirements (cash reserve ratio and statutory liquidity ratio), and open market operations to absorb financial system's liquidity.18
1.2.3 Banking Regulations:
A. Capital Adequacy Ratio (CAR):
The Capital Adequacy Ratio (CAR), or the Capital to Risk-Weighted Assets Ratio (CRAR), is a crucial financial ratio to determine the capability of a bank to absorb losses and withstand any turmoil. It calculates the capital of the bank to risk-weighted assets, so the banks will maintain adequate capital buffers to absorb risks like credit, operational, and market risks. B. Components of CAR as follows:
Tier 1 Capital: Tier 1 capital, or base capital, consists of equity capital, statutory reserves,
18 Organizations and function, Reserve Bank of India,
https://www.rbi.org.in/commonman/english/Scripts/Organisation.aspx#MF
and disclosed free reserves. 19 It is the safest capital to cover losses without compelling the bank to close down. Paid-up capital, statutory reserves, disclosed free reserves, minus equity investments in subsidiaries, intangible assets, and current and brought-forward losses. 20 • Tier 2 Capital: Tier 2 capital includes additional capital and includes undisclosed reserves, general loss reserves, and hybrid debt capital instruments. It is not as protective as previous capital & is used to incorporate bank losses at the liquidation of a bank. Its components are Undisclosed reserves, general loss reserves, hybrid debt capital instruments, and subordinated debts. 21 • Risk-Weighted Assets (RWA): RWAs are risk-weighted assets. Different assets are allocated different risk values based on the perceived riskiness of the asset, e. g. , credit risk, operational risk, and market risk.
The risk values are applied in order to calculate the total risk-weighted assets on the bank's assets.
C. Asset Quality Review (AQR):
AQR is performed to make sure that banks classify their assets correctly and make suitable provisions for anticipated losses. • RBI checks at regular intervals to assess bank asset quality, for eg. loans, and insists that banks classify them as standard, sub-standard, doubtful and loss. • It enables early discovery of tension in bank assets, hence enabling corrective action in a timely fashion.
D. Prudential Norms:
RBI has imposed limitations on the amount of lending to a single debtor or a cluster of debtors so as to avoid risk concentration.
19 ‘Capital Adequacy Ratio’, Wikipedia (2024)
20 Supra note 101
21 ‘What Does a High Capital Adequacy Ratio Indicate?’ (Investopedia)
Banks are required to classify their assets according to their quality and provision for anticipated losses, ensuring healthy financials. • The norms make banks operate effectively in order to minimize risk and keep a diversified portfolio.
E. Liquidity Requirement:
Statutory Liquidity Ratio (SLR): Banks must hold a certain percentage of their net demand and time liabilities in the form of liquid assets like government securities.22 • Cash Reserve Ratio (CRR): It is a monetary policy tool used by central banks, such as the Reserve Bank of India (RBI), to regulate the amount of cash that commercial banks must hold as reserves.23 • Net Stable Funding Ratio (NSFR): The Net Stable Funding Ratio (NSFR) is a liquidity standard introduced by the Basel Committee on Banking Supervision as part of the Basel
III reforms.24 The NSFR is intended to ensure that banks maintain a stable funding base in
relation to their assets and off-balance sheet activities, thereby reducing the risk of liquidity crises and financial instability.25 Such mandates helps banks to achieve short-term commitments and maintain liquidity in the market.
F. Corporate Governance:
Banking corporate governance involves the management of the business and matters to ensure public confidence and safety and reliability. • It encompasses principles like board duties, risk management, compliance, and 22 ‘Statutory Liquidity Ratio (SLR) - Definition, Objective & Impact’ (BYJUS)
23 ‘Meaning of Cash Reserve Ratio (CRR) | IndusInd Bank’ (14 November 2024)
24 Choudhry M, ‘What Is the Net Stable Funding Ratio (NSFR)?’ (Finance Unlocked, 6 November 2020)
25 ‘Net Stable Funding Ratio: Impacts on the Financial Sector’ (10 February 2025)
transparency, as defined by the Basel Committee.26 • They are enforced by regulatory bodies to protect stakeholders and promote financial stability via safe and sound banks.
G. Anti-Money Laundering (AML) & Know Your Customer (KYC):
The purpose of such regulations is to deter money laundering & terrorism financing by making banks aware of their customers and tracking transactions.27 • Banks must undertake customer due diligence, detect and report suspicious transactions to the Financial Intelligence Unit (FIU).28 • AML/KYC legislation maintains the integrity of the financial system and prevents illegal actions from entering it.
1.2.4 Non-Banking Financial Companies (NBFCs):
NBFCs are financial Institutions giving banking services but they do not have full banking license. Registration of such companies are done under Companies Act 2013 and are under the regulatory authority of RBI. They provide multiple range of services which are not provided by the traditional banks. They offer innovative financial products and have contributed significantly to financial inclusion in India.29 A. Registration and Regulation:
RBI governs NBFCs mandate of the 50-50 requirements, i.e., half of their assets especially their financial asset should be in the form of loans and advances. Also half of their revenues should be from financial assets.
26 Kumar S and Kaur DrM, ‘CORPORATE GOVERNANCE OF BANKS’ (2019)
27 ‘Anti-Money Laundering: What It Is and Why It Matters’
28 ‘What Are Financial Intelligence Units (FIUs)?’ (Dow Jones Professional)
29 Limited SF, ‘Apply for an Instant Car Loan, Two-Wheeler Loan, Secured Business Loan Online at SK
Finance Limited, Low Interest Rates, Less Documents, Easy to Apply’ (https://www.skfin.in)
RBI can supervise and inspect NBFCs to make sure they adhere to the regulations. • Control prevents NBFCs from crossing fixed boundaries, thus keeping the system stable.
B. Penalties for Non-Compliance:
In case if any of the NBFCs are not complying with the regulation standards set than the regulatory authority i.e. RBI can impose penalties for the same. • RBI can if needed cancel the registration of such companies for non-compliance. • Along with these NBFC will not be allowed to take public deposits. They will be prohibited from doing so due to the non-compliance. • These penalties are important so that NBFC function properly and make sure to comply all regulatory standards.
1.2.5 Legal Framework:
A. Reserve Bank of India Act, 1934:
The RBI was established to manage the currency and conduct banking business in India.30 • The initial capital of RBI was set at ₹5 crores.31 • The central government can issue directions to RBI in public interest, which can impact RBI's autonomy.32 • RBI can accept deposits from governments without interest, purchase and discount bills of exchange, deal in foreign exchange, provide loans to banks and governments, and engage in securities transactions.33
30 Section 3, RBI Act, 1934
31 Section 4, RBI Act, 1934
32 Section 7, RBI Act, 1934
33 Section 17, RBI Act, 1934
RBI has the exclusive right to issue currency notes in India.34 • Scheduled banks must maintain a cash reserve ratio (CRR) with RBI.35
B. Banking Regulation Act, 1949:
In order to operate banks must get their license from RBI. The RBI evaluates factors like financial stability, management quality, and public interest before granting a license. 36 • Banks cannot open new branches or relocate existing ones without prior approval from the RBI. 37 This is done so that every location has distributed banking services instead of it being biased. • Defines the activities banks can engage in, such as accepting deposits, lending, dealing in securities, and providing financial services, basically non-banking activities are prohibited. 38 • Prescribes minimum capital requirements for banks based on their operational scale and structure to ensure financial stability. 39 Banks must transfer at least 20% of their annual profits to a reserve fund to strengthen their financial base.
40 Scheduled banks must maintain a specific percentage of their demand and time liabilities as cash reserves with the RBI to ensure liquidity. 41 • Banks are required to prepare their balance sheets and profit-and-loss accounts in a prescribed format for transparency and uniformity. 42 • Mandates that the board of directors includes individuals with professional expertise in fields like banking, finance, or economics to ensure competent governance. 43
34 Section 22, RBI Act, 1934
35 Section 42, RBI Act, 1934
36 Section 22, Banking Regulation Act, 1949,
37 Section 23, Banking Regulation Act, 1949,
38 Section 6, Banking Regulation Act, 1949,
39 Section 11, Banking Regulation Act, 1949
40 Section 17, Banking Regulation Act, 1949
41 Section 18, Banking Regulation Act, 1949
42 Section 29, Banking Regulation Act, 1949
43 Section 10A, Banking Regulation Act, 1949
Requires banks to appoint a whole-time chairman or managing director for efficient management under RBI supervision.44 • Grants RBI the power to remove directors or officers if their actions are detrimental to the interests of depositors or public confidence.45
C. Prevention of Money Laundering Act, 2002:
PMLA's provisions are aligned with FATF recommendations, which set global standards for anti-money laundering (AML) and combating the financing of terrorism (CFT).46 • India's PMLA facilitates international cooperation by allowing for mutual legal assistance and information sharing with other countries to combat money laundering.47 • Countries like Malaysia, the Philippines, and Saudi Arabia have similar AML regulations that require financial institutions to implement robust compliance frameworks, including customer due diligence and suspicious transaction reporting.48 • Each country has its own regulatory bodies, such as the Financial Intelligence Unit in India, which plays a crucial role in enforcing AML regulations and coordinating international efforts.49
1.3 Securities and Exchange Board of India (SEBI): roles and responsibilities:
SEBI was established on 12th April 1988 as a non-statutory body by a government resolution and later on 30th January 1992 it got its statutory powers with the enactment of SEBI Act.50 Its
44 Section 10B, Banking Regulation Act, 1949
45 Section 36AA, Banking Regulation Act, 1949
46 Das A, ‘PMLA in Consonance with Global Standards Set by Financial Action Task Force: Solicitor-General Tells Supreme Court’ (25 April 2023)
47 ‘FIU-IND: Safeguarding Financial Integrity Through PMLA Compliance And Global Cooperation’
48 ‘Navigating AML Compliance Regulations in 2024’
49 Supra note 47
50 Securities and Exchange Board of India Act, 1992
primary work is to protect the interests of investors and to encourage the development and regulation of the securities market. It looks after and regulates the country’s securities market.
1.3.1 Roles and Responsibilities of SEBI:
A. Protective Functions:
The basic duty of SEBI is to safeguard the interest of the investor by ensuring that the securities market is fair and transparent. It does this by enforcing high levels of compliance and penalizing contraventions. • SEBI acts to prevent manipulative and unfair trade practices like insider trading, front running, and other manipulative market practices.51
B. Regulatory Functions:
SEBI oversees stock exchanges, brokers, mutual funds, and other market intermediaries to ensure market integrity.52 • It sets criteria for companies looking to list on stock exchanges and hence adhering to corporate governance standards.
C. Enforcement and Oversight:
SEBI can adjudicate in terms of market offences and impose fines. • It has the power to inspect financial data and investigate market discrepancies.
1.3.2 Relevant Laws:
A. SEBI Act, 1992:
SEBI has the power to regulate stock exchanges and intermediaries, prohibit fraudulent
51 ‘What Is the Securities and Exchange Board of India (SEBI)?’ (Investopedia)
52 Yadav DS and Verma DrM, ‘Regulatory Role and Functions of Securities Exchange Board of India’ [2024] International Journal of Criminal, Common and Statutory Law 2024
practices in the securities market, promote investor education and awareness, monitor substantial acquisitions of shares and takeovers. 53 • SEBI can issue directions to any person or entity associated with the securities market if it is necessary to protect the interests of investors and to prevent market manipulation or malpractices. 54 • SEBI can investigate cases where it suspects violations of securities laws. It can call for records from intermediaries or listed entities, examine individuals under oath and seize documents related to violations. 55 • It is mandatory for all intermediaries, e. g. , stockbrokers, sub-brokers, share transfer agents, to must register with SEBI before operating in the securities market.
56 • Monetary penalties are applicable for the violation such as failure to furnish information or returns as per section 15A of the Act, insider trading violations as per section 15G of the Act and fraudulent practices as per section 15HA of the Act. 57
1.4 Prevention of Money Laundering Act (PMLA):
The Prevention of Money Laundering Act (PMLA), 2002, is India's most prominent act for curbing and preventing money laundering activities. Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the [proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming] it as untainted property shall be guilty of offence of money-laundering.58 The PMLA was enacted with the purpose of countering the emerging threat from illegal financial flows and threats from the underground economy, both to India and to the global financial system. The act has helped fortify India's financial system, promote higher transparency, and bestow greater accountability on institutions. Whoever commits the offence
53 Section 11, SEBI Act, 1992
54 Section 11B, SEBI Act, 1992
55 Section 11C, SEBI Act, 1992
56 Section 12, SEBI Act, 1992
57 Section 15A – 15J, SEBI Act, 1992
58 Section 3, Prevention of Money Laundering Act, 2002
of money-laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but which may extend to seven years and shall also be liable to fine. 59 Know Your Customer (KYC) and Anti-Money Laundering (AML) policies are the key regulatory frames through which the government tries to prevent illegal financial activities such as money laundering and funding for terrorism. KYC processes enable the financial institutes and digital payment gateways to verify customers' identities, examine the risk profiles, and scrutinize their transactions against patterns of any kind. Therefore, complete verification of customers along with checking background helps the system ensure the security and transparency so that unlawful activities can be curbed. 60 A more comprehensive approach toward addressing financial crime is made by extending the KYC policies to AML.
61 They guide the institutions on the detection, monitoring, and reporting of suspicious transactions. Hence, KYC and AML measures are powerful defense against the misuse of financial systems for illegal purposes. Money laundering is making funds acquired illegally appear respectable. It has a critically damaging effect on economic soundness, aids corruption and promotes criminal activities. Fighting it requires international bodies like Financial Action Task Force to design international AML standards with the help of which local bodies in different countries in some form or the other adapt to it. 62 Digit payment platforms, for instance, necessitate a strong demand for Know Your Customer checks by the financial institutions as well as the FinTech firms.
In this connection, the whole framework would enable such entities to strongly validate and check the movements of the clients, screen for any malicious transactions as well as advise the regulation bodies of their findings to take any desired action about the incident. 63 This contributes to ensuring integrity in such digital financial products while gaining the trust of the consumer in them. Financial institutions need to keep customer identification and transaction records. Financial institutions need to report shady transactions to FIU-IND. The records must be kept for at least
59 Section 4, Prevention of Money Laundering Act, 2002
60 The Basel Committee - overview, (2011)
61 AML and KYC: Ensuring Compliance and Combating Financial Crimes
62 KYC (Know Your Customer) vs AML (Anti-Money Laundering) Dow Jones Professional
63 FATF Recommendations
five years from the date of the transaction and if failed to comply with these obligations than it can result in fines ranging from ₹10,000 to ₹1,00,000.64
1.5 Analysis of domestic laws and regulations:
1.5.1 Prevention of Money Laundering Act,2002:
A. Strength:
PMLA provides a strong framework for stopping money laundering through the definition of crimes, imposition of penalties, and establishment of investigation and prosecution procedures. It is in conformity with international standards developed by the Financial Action Task Force (FATF) so that India's anti-money laundering (AML) and combating financing of terrorism (CFT) regime is comparable to international best practices. • The Enforcement Directorate (ED) under PMLA is been given enough power to investigates cases of money laundering, and Financial Intelligence Unit-India (FIU-IN) facilitates reporting and investigation of shady transactions. This joint mechanism helps to identify and prosecute money laundering offenses efficiently. The existing laws has provided a wider range to ED so that they can act faster.
B. Weakness:
Multiple provision in the PMLA are made with excessive powers i.e. they are violating individual rights. Many provisions constitutional validity has also been challenged. From bail provisions to powers given to ED the act needed a balancing enforcement of powers. In fact, the main of the act i.e. what all offenses can be concluded as money laundering itself raises multiple concerns. • Even though ED can arrest easily under PMLA but the conviction for the same is very less. And the characteristic of money is very dynamic. It can be transferred to multiple people in fraction of second. Due to this it imposes a big challenge in collecting evidence. Existing 64 ‘Prevention of Money Laundering Act, 2002 (PMLA)’ (cleartax)
powers given are itself in excess the government can’t give more powers as well to make process smother and faster through he way of law.
C. Limitation:
The Act also establishes a limit for predicate offenses, which may exclude minor offenses from its coverage. The requirement of a threshold has been criticized as not fully consistent with FATF standards, and it may leave some money laundering activity unregulated. • There have also been allegations of PMLA being utilized, sometimes, to investigate common crimes, which could lead to the freezing of the assets of the innocent. Abuse of such a strong law can erode confidence in the process of law enforcement.
1.5.2 Reserve Bank of India Act, 1934:
A. Strengths:
It is responsible for ensuring that there is monetary stability through the application of several monetary policy instruments such as interest rates, CRR, SLR, reserve requirements etc. Such measures are important in managing inflation and enhancing economic growth. • Due to the financial crisis many people don’t trust banks with their money. RBI with the help of the rules and regulation mandates banks to follow the set standards so that they can maintain or increase their customers trust and confidence in the banking system. • It acts as watch guard upon the banks so that they don’t indulge into illegal activities or follow biasness while giving loans. Something that happened in the Harshad Mehta scam. • Apart from managing private and government banks it also looks after the foreign direct investment in the country.
B. Weakness:
Banks face challenges in meeting complex regulatory systems, which tend to consume extensive time and capital resources. These complexities can possibly hamper developments by mostly reducing the scope of innovation and proficiency in banking
operations. • The rules under the Act may be rigid and due to this many times the banks miss to grab an opportunity. It will be unable to quickly respond to evolving market situations. This may limit the capacity of banks to innovate and react to emerging financial technologies.
C. Limitations:
Initially, the law did not comprehensively include cooperative banks, but with the subsequent amendments its application extended to such banks. And this limited scope or selective approach may result in unequal regulatory behaviour between various types of banking institutions. • The law might not adequately cover new financial instruments or new technologies, which would require regular updates to ensure that regulatory structures keep pace with developments in the market.
1.5.3 Securities and Exchange Board of India (SEBI) Act, 1992:
A. Strengths:
It regulates the securities market ensuring it functions properly on the pillars of transparency and fairness. Along with these it also protects the market integrity. • It protects investors' interest through strict compliance practices and penalization for noncompliance. It involves making genuine disclosures by listed companies regarding their financials and keep standards of corporate governance. • With the changing time SEBI has also accepted and promoted new concepts in trading like dematerialization of share then e-trading.
B. Weakness:
SEBI regulations are, at times, complex, and such complexity may discourage small businesses from listing on the stock exchanges because compliance may be difficult for them.
Due to vast and dynamic nature of market SEBI sometimes faces difficulties in order to effectively look after it. And due to this they cannot respond timely to any irregularities in the market.
C. Limitation:
Government appointments affect the performance of the body, which can take away its autonomy. This can end up to political control of regulatory actions. • The regulatory jurisdiction of SEBI is primarily confined to Indian markets and therefore international enforcement becomes difficult. This may limit the fight against cross-border financial crimes. • Even with stringent policies, it is difficult to impose rules over a large and scattered market, and certain malpractices may go unnoticed or remain unpunished.