There is a need to consider financial regulator like the Reserve Bank of India (RBI) to be audited, said Comptroller and Auditor General of India (CAG) Mr Shashi Kant Sharma said at an ASSOCHAM event in New Delhi today.
In India, CAG does not audit the RBI, whose auditors are appointed by Central Government under the provisions of the RBI Act; CAG conducts audit of other financial sector regulators like SEBI, IRDA and PFRDA but does not conduct performance audits, said Mr Shashi Kant Sharma, Comptroller and Auditor General of India (CAG), while inaugurating ‘3rd Ntional Confrence on Financial & Corporate Frauds,’ organized by The Associated Chambers of Commerce and Industry of India (ASSOCHAM). .
In the light of the growing incidents of financial frauds, it is a thought for consideration as to whether, in future, our audit should look into the risks and vulnerabilities facing our financial sector as well as the ability and effectiveness of regulators to mitigate such risks, said Mr. Sharma.
I am sure, the developments in the USA and the UK will suitably inform such a discourse. Objective should be to achieve the desired level of assurance, with respect to the effectiveness and functioning of financial sector regulators, said the Comptroller and Auditor General of India (CAG).
Comptroller and Auditor General of India (CAG) Mr Sharma said, in recent times, a lot of attention has been given to frauds committed against banks, especially the public sector banks that are struggling with enormous amounts of non-productive assets or NPAs. There is a belief that a significant part of NPAs could be amounts fraudulently obtained as advances from the banking system. There is also a belief that a large part of these amounts may have been transferred abroad and may never get recovered, said Mr. Sharma.
There should be a comprehensive strategy to deal with them in order to safeguard the integrity of the financial system as well as the enormous public interest, said Mr Sharma.
In a country that is largely financially illiterate, the possibility of fraud is much higher. Promoting financial literacy is a long term strategy for mitigating this risk. At the same time, the regulators have to work together to not only enhance their capacity to deal with financial frauds, but also to remove any regulatory arbitrage.
The emerging international trend of the oversight of the regulators, in order to provide a higher level of assurance, is an interesting development that must be watched to inform our own system of oversight and assurance, highlighted Mr. Sharma.
The developments in the USA and the UK echo demand for more accountability and transparency of the financial sector regulators, as the spate of scandals the world over has subjected the world to unprecedented stresses and turmoil, and there are demands for a higher level of assurance of the functioining of the financial sector regulators.