Regulators have to work together to not only enhance their capacity to deal with financial frauds, but also to remove any regulatory arbitrage.

New Delhi: With regulators like the Reserve Bank out of its purview, CAG Shashi Kant Sharma today sought discussion on the need to audit financial sector regulators to check their effectiveness in dealing with frauds.

"The developments in the USA and the UK echo demand for more accountability and transparency of the financial sector regulators, as the spate of scandals the world over has subjected the world to unprecedented stresses and turmoil, and there are demands for a higher level of assurance of the functioning of the financial sector regulator," he said.

In India, the Comptroller and Auditor General (CAG) does not audit RBI whose auditors are appointed by the central government under the provisions of the RBI Act, he said at an industry event here.

"In the light of growing incidences of the financial frauds, it is a thought for consideration as to whether in future our audit should look into risk and vulnerability facing our financial sector and the ability and effectiveness of our regulators to mitigate such risks," Sharma said.

He further said that the developments in the USA and the UK will suitably inform such a discourse. "Objective should be to achieve the desired level of assurance, with respect to the effectiveness and functioning of financial sector regulators," he added.

Emphasising that risks and vulnerabilities from financial frauds are substantial, the CAG said there should be a comprehensive strategy to deal with them in order to safeguard the integrity of the financial system as well as the enormous public interest.

In a country that is largely financially illiterate, the possibility of fraud is much higher and promoting financial literacy is a long term strategy for mitigating this risk, he said.

At the same time, he said, the regulators have to work together to not only enhance their capacity to deal with financial frauds, but also to remove any regulatory arbitrage.

"The emerging international trend of the oversight of the regulators, in order to provide a higher level of assurance, is an interesting development that must be watched to inform our own system of oversight and assurance," he added.