Answer

Recently the Reserve Bank of India (RBI) released its “Framework for Formulation of Regulations”, detailing the process for issuing regulations, directions, guidelines, and notifications. Aligned with SEBI’s (Procedure for making, amending and reviewing of Regulations) Regulations, 2025, this marks a broader institutional shift toward consultative regulation-making that emphasizes transparency, stakeholder participation, and convergence with global regulatory standards.

Significance of Consultative Regulation‑Making

• Enhanced stakeholder inclusivity & transparency: Consultations allow inputs from public, industry, and academia, reducing regulatory blind spots.
  Eg. RBI has invited 21‑day feedback on the Payment System Self-Regulatory Organisation (SRO) framework.
• Evidence-based and data-driven rules: Encourages cost-benefit analysis before finalising regulation.
  Eg. RBI’s framework mandates Regulatory Impact Assessments (RIAs) before new guidelines.
• Higher market trust & accountability: Transparent drafting improves credibility and reduces backlash.
  Eg. SEBI‘s 2025 rules require publishing rationale for accepting or rejecting stakeholder feedback.
• Adaptive and forward-looking regulation: Periodic review aligns policies with dynamic market needs.
  Eg. SEBI’s revised framework mandates updates based on market surveillance and judicial trends.
• Harmonisation with global norms: Aligns with Organisation for Economic Co-operation and Development (OECD) and International Organization of Securities Commissions (IOSCO) principles.
  Eg. RBI’s approach reflects Financial Sector Legislative Reforms Commission (FSLRC) recommendations.

Gaps in RBI and SEBI Frameworks 

• Short consultation windows: Twenty-one days may not suffice for comprehensive feedback.
  Eg. SEBI’s fixed 21-day window restricts in-depth responses from diverse stakeholders.
• Limited participation from smaller stakeholders: Low awareness and access hinder input.
  Eg. RBI’s consultations receive minimal responses from Micro, Small & Medium Enterprises (MSMEs) and civil society.
• Absence of detailed RIAs in SEBI: Lacks robust pre-legislative cost-benefit analysis.
  Eg. SEBI’s 2025 procedure omits mandatory Regulatory Impact Assessment (RIA) clauses.
• Poor feedback integration: No clarity on how public comments influence final decisions.
  Eg. SEBI discloses reasons for rejection but not how feedback shapes final rules.
• Discretionary exemption from consultation: Emergency provisions allow bypassing transparency.
  Eg. SEBI may skip consultation citing urgency, weakening trust and predictability.

Reforms Based on International Best Practices 

• Extend consultation period to 45–60 days: Ensures broader and deeper feedback.
  Eg. The UK Financial Conduct Authority (FCA) typically allows 60-day consultation periods.
• Make RIAs mandatory across regulators: Quantitative analysis improves decision-making.
  Eg. US Securities and Exchange Commission (SEC) mandates RIAs in major rule-making.
• Public access to feedback and responses: Enhances transparency and accountability.
  Eg. US SEC publishes stakeholder inputs and regulator’s rationale on its website.
• Capacity-building for smaller stakeholders: Promotes equitable participation.
  Eg. European Supervisory Authorities (ESAs) conduct workshops to educate stakeholders on draft policies.
• Independent oversight of the consultation process: Enables external scrutiny to uphold accountability, transparency, and procedural compliance in electoral rule changes.
  Eg. The Australian Treasury evaluates regulatory consultation practices via external peer review.

A robust consultative framework reflects the maturing of India’s regulatory institutions into participatory and rule-bound entities. As financial markets grow in complexity, such frameworks can deepen democratic legitimacy, institutional trust, and ensure that regulation serves not just efficiency, but also equity.

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