The Indian regulatory landscape is dotted with several sectoral regulators. Each of these specialised sectoral regulators is entrusted the task of maintaining the market dynamics of its own sector and preventing market failure. However, often their regulatory mandates overlap with each other, and nowhere is this blurring of boundaries more pronounced than in the efforts to foster and fuel competition in the Indian economy.
The Competition Commission of India (‘CCI’) is a specialised sector-agnostic regulator tasked with preserving and promoting competition. Given its pansector mandate, it is no surprise that the CCI often ventures into the domain of sectoral regulators. Many sectoral regulators, such as the Telecom Regulatory Authority of India, Insurance Regulatory & Development Authority, Securities and Exchange Commission and the Petroleum & Natural Gas Regulatory Board, are also meant to independently encourage competition in their respective markets. Given the already existing jurisdictional tension among regulators with overlapping functions, the Government of India (‘GoI’) has further obscured the sectoral delineations with the Draft Indian Financial Code 2015 (‘Draft 2015 Code’) which was released on July 23, 2015 by the Financial Sector Legislative Reforms Commission (‘FSLRC’).
The Draft 2015 Code seeks to regulate the financial sector and financial agencies, including the Financial Authority, the Reserve Bank of India (‘RBI’), the Financial Redress Agency, the Resolution Corporation, the Financial Stability and Development Council and the Public Debt Management Agency (together called the ‘Financial Regulators’). When in place, it will replace a plethora of existing laws and attempt to bring coherence and efficiency to financial regulation in India.
The Competition Act, 2002 (‘Competition Act’) currently allows sectoral regulators to make references to the CCI on competition law issues and vice versa. Furthering this theme of inter-regulator cooperation, the Draft 2015 Code seeks to impose an obligation on the CCI to make a reference to the Financial Regulator, albeit as a nonvoting participant, when it undertakes any proceedings under the Competition Act where at least one of the parties is a financial services provider. In such cases, the Financial Regulator would be entitled to nominate a member or senior official to attend CCI proceedings. On the other hand, under the Draft 2015 Code, the Financial Regulator would be obligated to make a reference to the CCI to report any conduct of a financial service provider which it believes to be in violation of the Competition Act.
However, the Draft 2015 Code goes further and empowers the CCI to intervene in the issuance of any regulations, guidance or codes proposed by the Financial Regulators, if it feels they will, or are likely to, create any restriction or distortion of competition in the market for financial products or financial services (‘Negative Effect’). The CCI may comment even when the Negative Effect has been created on account of ‘a feature or combination of features of a market that could be dealt with by regulatory provisions or practices’. ‘Features of a market’ include both the structure of the market for financial products/ services as well as the conduct of financial service providers and/or consumers (even if this conduct is not in the market for the concerned financial product/services).
However, the CCI’s powers, as envisaged under the Draft 2015 Code, do not stop at the provision of commentary alone. The Financial Regulator in question is also required to respond to the CCI outlining what action it proposes to take to address the concerns raised by the CCI or provide reasons if it is not adopting any such actions. Nonetheless, if the CCI continues to remain of the opinion that a Negative Effect is/will be created, the CCI may issue binding directions to the Financial Regulator requiring it to take particular actions to remedy the same. These binding directions would need to be submitted to the Central Government and receive parliamentary approval. While the intention behind the Draft 2015 Code may have been to advance and nurture free and fair competition in the market for financial services and products it does raise certain fundamental issues which need closer scrutiny.
Vast increase in the powers of the CCI – While the requirement of parliamentary approval of any binding directions by the CCI does signal an acknowledgment by the FSLRC that these powers should be exercised sparingly by the CCI; given the absence of any specific guidelines to this effect, the end result could be a vast increase in the CCI’s powers. This could result in significant distortion of the boundaries between sectoral regulators and the CCI, particularly when the Financial Regulators are trying to address distinct structural and/or conduct related issues in the market.
CCI review of policy decisions in the financial services/products market – The CCI is a pan-sectoral regulator with the mandate to promote competition across all markets in India. However, the Draft 2015 Code empowers the CCI to influence policy decisions of the Financial Regulators if it is of the opinion that these decisions cause a Negative Effect in the market. While Financial Regulators focus on correcting specific issues in the markets for financial services/products, the CCI’s intervention could alter the focus of the policy actions in question.
Intervention in proceedings before the CCI – As mentioned earlier, any proceeding under the Competition Act where at least one of the parties is a financial services provider, the Financial Regulator would be entitled to nominate a member or senior official to attend the CCI’s proceedings, albeit as a non-voting participant. Such a nomination mechanism appears to be a reasonable way to lend sectoral expertise to the CCI’s proceedings, but the extent to which the said nominee may participate in the proceedings is not clear. Even without a vote, any active intervention by the nominee could influence the proceedings. This is especially so in cases where a Financial Regulator is a party to the proceeding., This provision may create due process issues that could effect enforcement under the Competition Act since the procedural guidelines on the conduct of nominees during the CCI’s proceedings are pending and unclear.
Competition regulators in other jurisdictions have not been granted similar powers of review and oversight into the financial sector. Whilst the Draft 2015 Code is a positive step towards harmonising various financial norms and regulators, it could blur the line between the mandates of financial and competition regulators. Comprehensive guidelines that delineate the extent of CCI oversight on the market for financial services and products in India, as distinct from its own mandate under the Competition Act could bring welcome clarity. Equally, some clarity on the role and participation of other stakeholders in CCI proceedings is also needed.
