Bertrand Russell’s In Praise of Idleness offers an unlikely starting point for a discussion of financial regulation.  The caption, humbly borrowed from his famous essay, can drive home the point that regulators should regulate markets, not constantly remake them, and oftentimes it is better not to do anything. 

The context is the unsettling securities markets in India of late. 

Financial regulators perform their most important function not when they are most visible, but when markets can operate with confidence that the rules will remain stable. Regulation needs activism where there is demonstrable risk but also something less fashionable: Restraint. 

Financial markets have an odd relationship with regulators. They demand protection from fraud, manipulation and excessive risk, yet dislike uncertainty created by frequent changes in the rules. Regulators, meanwhile, face pressure to respond to every new problem, innovation or controversy with a consultation paper, circular, framework or speech. 

The result can be a paradox. Regulation intended to reduce uncertainty can itself become a source of uncertainty. 

This is not an argument for regulatory inaction. Nor is there anything inherently wrong with regulators speaking publicly. Central banks and securities regulators must communicate when markets need clarity, especially during periods of stress. The question is one of frequency, purpose, timing and proportionality. 

A good regulator should intervene when there is a demonstrable market failure and/or systemic risk and/or consumer protection issue, not merely because an issue is prominent, politically salient or likely to attract headlines. 

There is growing international evidence for such regulatory humility. 

The Bank for International Settlements has recently highlighted how regulations can produce consequences that were not anticipated when they were introduced. With its decade-long experience with the Liquidity Coverage Ratio it found that the LCR strongly raises banks' high-quality liquid assets and somewhat reduces their reliance on short-term funding but  can crowd out lending and induce greater risk-taking.  

This is precisely why regulatory cost-benefit analysis cannot end on the day a regulation is issued. 

The US SEC provides an instructive example of regulatory course correction. In 2005 it adopted Rules 611 (prevent an order from being executed at a worse displayed price when a better protected quotation existed elsewhere) and 610(e) (to address locked and crossed orders) of Regulation NMS. Recently, after two decades of technological and market-structure change, it proposed rescinding both rules, citing increased costs and complexity, restrictions on execution choices and greater fragmentation. The episode illustrates not that regulation was necessarily misguided, but that rules can outlive the market conditions for which they were designed.  

India should take note. 

SEBI's current consultation docket illustrates the breadth of the regulatory agenda. In September 2026 alone, its published list included proposals concerning market-infrastructure institutions, closing auctions and derivatives, cyber security, governance, mutual-fund settlement and online bond platforms, among others.  

Again, the existence of many proposals does not establish that they are unnecessary. Several may be entirely justified. The issue is cumulative: what does the continuous flow of regulatory change do to the behaviour and expectations of market participants? 

RBI's regulatory programme similarly contains important and necessary initiatives. Its 2025-26 agenda includes harmonised prudential regulations, expected-credit-loss rules, co-lending, securitisation of stressed assets, Basel III implementation and stronger liquidity stress testing. RBI, to its credit, has also rationalised its existing rules and regulations. 

That last point is worth emphasising. Good regulation is not synonymous with more regulation. Sometimes good regulation means removing, simplifying or recalibrating an existing rule. 

Regulatory Restraint
There is also a less obvious danger in excessive regulatory communication. 

When every speech can contain a policy signal and every consultation paper can change expectations, market participants begin trying to anticipate the regulator rather than price economic fundamentals. A draft becomes a tradeable event; a speech becomes a signal; a clarification becomes market-moving news. All fine, till they are intended to be so. 

The regulator then acquires an influence over market behaviour that goes beyond the formal rules it has actually enacted. 

That is not necessarily the regulator's intention. But markets respond to incentives, not intentions. 

The answer, therefore, is not for regulators to retreat into silence. Silence during a systemic-risk episode can be dangerous. Nor should regulators hesitate to act against misconduct simply because intervention might unsettle markets. 

What policymakers need is a stronger distinction between necessary intervention and regulatory restlessness. 

Before changing a rule, regulators could ask five questions: 

• What specific market failure is being addressed? 

• What evidence demonstrates that the existing framework is inadequate? 

• What behaviour might the proposed rule induce elsewhere? 

• Could supervision, disclosure or enforcement solve the problem without another layer of regulation? 

• When will the regulator review whether the rule has actually achieved its objective? 

The final question may be the most important. 

Financial regulation should have an institutional memory. Every major intervention should eventually be subjected to a post-implementation review. Rules that have outlived their purpose should be simplified or withdrawn. Rules producing unintended consequences should be recalibrated. And regulations whose benefits cannot be demonstrated should not survive merely because removing them is “inconvenient”. 

The objective should be regulatory credibility, not regulatory visibility. 

Markets do not need regulators to be constantly in the news. They need to know that the rules will be clear, proportionate, consistently enforced and changed only for a reason that can withstand scrutiny. 

There is an old distinction between a referee and a player. The referee must intervene when a foul occurs. But a referee who keeps changing the rules during the match, however well-intentioned, eventually becomes part of the uncertainty. 

Financial regulators should therefore speak when markets need clarity, act when markets need protection and practise the rare regulatory virtue of knowing when neither is necessary. 

That is not regulatory weakness. It is regulatory maturity. And also leads to regulators’ serenity prayer.