Regulatory engagement: A sine qua non

A structured regulatory engagement with the banking regulator is essential for policy makers and the industry to meaningfully formulate and transmit policy seamlessly. While the Reserve Bank of India (RBI) interacts with industry bodies and market participants, the second Regulatory Review Authority and its advisory group signalled a paradigm shift to strengthen collaboration. I am outlining some essential elements of stakeholder engagement by regulators in key markets, with whom I had interactions.

United Kingdom: Treasury and regulators are subject to various obligations intended to support stakeholder engagement with the policy-making process, and to help ensure it is rigorous, evidence-based and open to external challenge. Regulators are required to give an explanation of representations received and how they have been assessed.

Indonesia: For changes in regulations with potential impact on banking operations and strategy, the Financial Services Authority of Indonesia (Otoritas Jasa Keuangan, or OJK) seeks industry feedback. Draft policy is formulated with closed group discussions and working groups (WGs) with feedback sought from stakeholders. Regulations issued by Bank Indonesia (the banking regulator) — considered as macro-prudential — are normally issued with little or no consultation with industry. However, regulations that impact banking strategy and operations are always issued after consultation with industry focus groups.

Thailand: The Bank of Thailand’s (BoT’s) regular communication with the industry is done through several approaches, including meetings with the Thai Bankers Association. “We Finetune” meetings are set up twice a year by BoT with senior compliance officers of banks as well. And this is followed by the issuance of consultation papers for feedback on updates to regulation. If the regulations under revision are complicated, BoT constitutes a WG with members nominated by industry associations. 

Singapore: The Monetary Authority of Singapore (MAS) issues consultation papers for comment when proposing changes to regulations. And for more material regulations — like Libor reform — it’s normal for the MAS to set up and action a steering committee with terms of reference with significant secretarial and potential funding support. Project milestones are fixed and a communication strategy built, leading to various consultation and information papers being published with MAS views. I was co-chair of a committee and a member of another committee set up by MAS on Anti-Money Laundering Regulations and the discussions were transparent and open. 

Malaysia: At the onset of the pandemic, the Central Bank of Malaysia (Bank Negara Malaysia, or BNM) actively engaged with the banking industry leadership to implement policy matters. Important policy guidelines like the licensing policy for ‘Digital Bank’ are placed for public consultation. Additionally, BNM at times reaches out to specific banks to seek inputs on potential changes that they intend to implement. 

The Philippines: The Central Bank (Bangko Sentral ng Pilipinas, or BSP) consults with regulated entities through the Bankers Association of Philippines and/or the Association of Bank Compliance Officers. Depending on the criticality of the proposed policy, they hold dialogues with industry representatives. Most recently, they have begun publishing the drafts on their website.

The principles of engagement from the markets listed above revolve around consultation being the key for policy formulation. Incorporating feedback from industry and industry associations; taking into account public feedback through consultation papers on websites; structured meetings with bank chief executives and compliance heads to assess regulatory and supervisory changes are at the core of engagement strategy.

While the RBI has a well laid out communication policy, it is time for an engagement strategy document incorporating best practices of other central banks in key markets.

The writer is the Founder and Designated Partner of Duvvuru & Reddy LLP Regulatory Advisory Services. He was also a member of the Advisory Group to the second Regulatory Review Authority set up by the RBI