A 3P Rubric for Regulatory Governance

A recent policy framework by the Reserve Bank of India (RBI) on the formulation of its own regulation, committing itself to public consultation, impact assessment and periodic review is nearly as significant as monetary policy and liquidity announcements and is emblematic of an enhanced emphasis on regulatory governance by the central government and financial regulators.  

Transparency and stakeholder consultation are the cornerstone of the procedural aspects of rule of law, including for regulation by independent regulators. The World Bank’s “Global Indicators of Regulatory Governance” project shows that citizen access to the rulemaking process is central to the creation of a conducive business environment for investment and growth. 

Greater levels of consultation are associated with a higher quality of regulation. A study conducted by the World Bank in 185 countries shows strong correlations between regulatory quality and economic growth, better governance quality and higher incomes per capita.

A new ethos is emerging at the central government typified by regulatory governance best practices through principles and practices including evidence-based and transparent regulation-making through stakeholder consultation, cost-benefit analysis and regulatory impact assessment. 

First announced in the 2023 Budget, it has since been echoed in the Economic Survey and effectuated through instruments of the regulators such as RBI, SEBI and IRDAI. Sound regulations shape markets, steer economic behavior and ensure systemic stability. The Union Budget 2025 heralded the government’s commitment towards a “light-touch” principles-based regulatory framework to keep up with technological innovations and global policy developments. 

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Participative - Public consultation 

Public consultation is the cornerstone of democratic lawmaking. While this has not been implemented vertically at the national level, despite the 2014 policy requiring pre-legislative public consultation policy, sectoral regulations also require this as they operate as law for regulated entities and their stakeholders. 

Professor Ellis Ferran writing in the Oxford Handbook on Financial Regulation states that regulatory transparency and disclosure can play a significant role in improving predictability and governance. Greater transparency boosts public understanding of policy and practices thereby enhancing legitimacy and compliance, enhancing policy effectiveness and boosting industry confidence in the system. 

Stakeholder consultation also allows for a grounded feedback loop from the industry but also provides cushioning to businesses from sudden shocks and regulatory uncertainties, potentially improving business decision-making. 

For instance, the Digital Personal Data Protection Act, 2023 and draft rules thereunder saw extensive industry as well as nation-wide consultations, which resulted in certain improvements in the final law (such as blacklisting instead of a whitelisting approach for cross-border data transfer). 

In the financial sector, public consultation on SEBI’s specified digital platform (SDP) consultation paper resulted in a clarification that it is not obligatory for digital platforms to be notified as SDPs as SEBI does not intend to regulate digital platforms. Had the circular been issued without consultation, it would have resulted in over-regulation and consequent compliance burden on digital platforms, which are not even sought to be regulated by a financial regulator directly in the first place.

SEBI, RBI and IFSCA require public consultation prior to issuance of regulations, as also that a summary of comments received is published on the website for good order. TRAI has been observing this practice and even publishes entity-wise comments, which foster accountability. 

When regulatory decisions are well-documented and publicly accessible, it allows stakeholders to understand the rationale behind the regulator’s decisions and reduces the potential for arbitrariness or bias and enhances the predictability of the regulatory environment. 

Proportionate - Impact Assessment

Regulatory impact assessments (RIA), including cost-benefit analysis by the law and policy makers, are critical to ensure that regulations are proportionate and the economic cost of regulations will not outweigh the benefits. A report by the Asia-Pacific Economic Cooperation states that codifying RIA into statutory mandates has helped the US, UK, and Australia deliver regulatory reforms that have led to increased productivity and economic growth. 

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Within India, the NITI Aayog has also suggested that RIA be incorporated in the proposed regulation-making process. Diligent use of these tools and practices also safeguards a regulator from legal scrutiny over regulatory decisions as it could be used to demonstrate that the policy decisions were made after a careful assessment of its potential economic, social, and financial impacts, thereby promoting transparency and accountability.

Pre-emptive - Periodic review and pace with technology 

Regulations must not be reactive, playing catch-up, but rather preemptive and ahead of the curve. Periodic review is one tool to engender this. IFSCA makes it mandatory to review regulations every 5 years or earlier if needed, whereas RBI and SEBI have indicated no such timeline and have committed to only periodically review of regulations. 

Separately, further to the announcements in the Budget, the Financial Stability and Development Council will also be reviewing existing regulations to ensure that they are responsive to current realities as well as future-proof the financial sector. The RBI Governor also echoed this sentiment in his remarks at the Financial Express Modern BFSI Summit in July 2025 where he mentioned the work being done by a separate review cell within RBI to consolidate more than 8,000 regulations to simplify compliance and enhance clarity.

These regulatory governance best practices should be embedded in the restrictive constituent statutes of these regulators to obviate them being ad hoc or optional. A statutory mandate fosters a process orientation and rigour. The ultimate goal should be for these practices to be embedded statutorily and be applied uniformly across the central, state and sectoral levels in the long run.

Richa Roy is Partner and Aayushi Bindal is Principal Associate at Cyril Amarchand Mangaldas.