Mumbai: The Reserve Bank of India (RBI) is gradually shifting towards principle and outcome-based regulations that will give operational flexibility to regulated entities (REs) and tailor their activities to their unique needs, said central bank deputy governor M Rajeshwar Rao.

There is no perfect regulatory approach, however, principle and outcome-based regulation is generally found to be more suitable for mature markets, he said while addressing the DoPT MDP on Financial Market Regulations at the Indian Institute of Management Kozhikode (IIM-K) on Monday. Nevertheless, even developed economies use rule-based framework when it comes to safeguarding interests of consumers, he said.

“We, at the Reserve Bank are gradually shifting towards principle and outcome-based regulations, as it gives operational flexibility to the REs for conduct of their operations and tailor their activities to their unique needs, while adhering to the regulatory framework for delivering the outcomes expected from them,” Rao said. The Reserve Bank of India (RBI) uploaded his speech on its website on Wednesday. The deputy governor noted that regulators are often confronted with complex challenges while framing regulations, necessitating adoption of a forward-looking approach. Addressing emerging risks calls for nuanced and adaptive strategies to ensure resilience. “Regulators must adopt a more proactive mindset to help build a financial system that is both resilient and adaptable. Being proactive entails embracing innovation and fully leveraging data and technology,” he said.

Rao said the regulators need to further leverage technology to enhance their efficiency -- both internal and supervisory, carry out regulatory horizon risk scanning and boost regulatory effectiveness.