Finance Minister Nirmala Sitharaman believes that for regulations in a technology-driven world, solutions have to come from stakeholders and have to encompass both rule-based and principle-based regulations.
“Virtues of both sides need to be taken. The intent of any regulation can only be stated in a technology-driven world. But the solution will have to come from stakeholders, and that is where it cannot be any one of these two silos that you mentioned.”
Sitharaman was responding to an ETBFSI query on responsible regulations at the Global Fintech Fest 2023 in Mumbai.
ETBFSI editor Amol Dethe drew attention towards the debate in the industry over principle-based and rule-based regulation asking the minister what did the government favour.
“The intent of the actions needs to be read out. It is important to understand what will fit well for the stakeholders concerned,” she said.
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“It has to be worked out in consultation rather than creating the silos. It has to be very consultative and also best-suit, best-fit for both,” Minister believed.
Principle-based regulation and Rule-based regulation debate
There is an ongoing debate on Principle-based regulation and Rule-based regulation in the industry.
As per the trends, the industry is rooting for principle-based regulation, considering the high compliance burden under rule-based regulation.
Under rule-based regulation, a company has to follow every rule formed by the regulator or the government entity.
While under the principle-based regulation, the company itself fundamentally agrees to follow some guidelines for managing the compliances on their own.
Principle-based regulation also means moving away from reliance on detailed, prescriptive rules and relying more on high-level, broadly stated rules or principles to set the standards by which regulated firms must conduct business.
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In contrast to this, rules-based regulation uses specific statements to define requirements that firms must meet. These necessarily focus on specific areas and tend to use quantitative terms.
