CAG seeks auditing of regulators like RBI [Polity]
Comptroller and Auditor General of India, Shashi Kant Sharma said there was a need to consider CAG audit for financial regulators like the RBI.
He also said that a significant portion of what is being recognised as bad loans may have been transferred abroad and may never get recovered.
Though a proposal on potential audit of RBI was floated in the past, CAG’s observations assume significance as they have come at a time when the banking sector is reeling under severe stress and the government is in the process of selecting a new RBI governor.
Sharma referred to the way advanced markets such the US and the UK have dealt with the issue.
In India, the CAG doesn’t audit the RBI, whose auditors are appointed by the central government under the provisions of the RBI Act.
In US, the GAO (Government Accountability Office) (counterpart of CAG in India) didn’t audit the Fed till 1978; post-78 it was allowed to review the Fed’s regulatory duties in the payment system, but was still prohibited from reviewing the deliberations, decisions and actions on monetary policy.
But soon after 2009, the year of the financial crisis, the US Congress allowed the GAO to audit loans made by the fed to individual companies.
After 2012, it was further allowed to review Fed’s internal controls, policy on collateral, use of contractors and other activities, whilst still keeping the monetary policy outside its ambit.
In UK, Bank of England has historically been outside the ambit of auditing institution, the NAO (National Audit Office). However, a recent law mandates that the Bank of England should consult the Comptroller while appointing its auditors.
The recent incident of cyber crime in Bangladesh, led to the resignation of its central bank governor Atiur Rahman.
Various factors such as increasing technology use, faster communication and complexity of products aiding fraudsters.
Promoting financial literacy is a long-term strategy for mitigating this risk. At the same time, the regulators have to work together to not only enhance their capacity to deal with financial frauds, but also to remove any regulatory arbitrage.