Financial Sector Legislative Reforms Commission (FSLRC) was set up by the Indian Government in pursuance of the announcement made in Union Budget 2010-11, to help rewriting and harmonizing the financial sector legislation, rules and regulations so as to address the contemporaneous requirements of the sector. The resolution notifying the FSLRC was issued on March 24, 2011. FSLRC had a two year term.
The Commission was chaired by Supreme Court Justice (Retired) B. N. Srikrishna, and had ten members with expertise in the fields of finance, economics, law and other relevant fields. The secretariat was placed at National Institute of Public Finance and Policy (NIPFP). Secretariat consisted of a Secretary at the level of Joint Secretary to the Government of India and other officials and support staff.
The establishment of the FSLRC is the result of a realisation that the institutional foundation (laws and organizations) of the financial sector in India needs to be looked afresh to assess its soundness for addressing the emerging requirements in a rapidly changing world. Today, India has over 60 Acts and multiple Rules/ Regulations that govern the financial sector. Many of them have been written several decades back. For example, the RBI Act and the Insurance Act are of 1934 and 1938 vintage respectively and the Securities Contract Regulation Act, which governs securities transactions, was legislated in 1956 when derivatives and statutory regulators were unknown in the financial system. A Large number of amendments were, therefore, made in these Acts and regulations at different points of time to address various needs. But these have also resulted in their fragmentation, often adding to the ambiguity and complexity of regulations in the financial sector.
Key Recommendations of the committee:
The commission has proposed a sector-neutral Indian Financial Code to replace multiple and old financial sector laws, splitting the regulation between the Reserve Bank of India and a new ‘Unified Financial Agency’ that will oversee the remaining financial sector. In effect, the proposed unified financial sector regulator would subsume, repeal and basically every existing law that deals with sector regulators like Sebi, IRDA, PFRDA and at least some functions of the Forward Markets Commission. These laws include principal and main legislations like the Securities and Exchange Board of India Act (Sebi Act), the Reserve Bank of India Act (RBI Act). Even as the RBI Act is separate, all other laws (essentially 20 laws) would get repealed, while there would be amendments in many other laws. In short the Securities and Exchange Board of India ( Sebi),Forward Markets Commission (FMC), Insurance Regulatory and Development Authority ( IRDA) and Pension Fund Regulatory and Development Authority (PFRDA) should be merged into this new agency.
A Financial Sector Appellate Tribunal will hear appeals against all financial sector regulators and into which the existing Securities Appellate Tribunal will be subsumed and a Resolution Corporation will replace the Deposit Insurance and Credit Guarantee Corporation of India, which assists in closure of distressed financial sector institutions.
According to the report RBI will be divested of its powers over management of public debt, which is currently one of its subsidiary functions. The Debt Management Bill, likely to be considered by the Cabinet, proposes a separate debt management office to be attached to the finance ministry. The report also recommends creation of a public debt management office, a recommendation that was criticized by RBI when the draft report was issued for consultations.
It also recommends empowering the existing Financial Stability and Development Council, by making it a statutory body responsible for managing risk and crises in the financial system. The report also recommends setting up of a financial data cell, which will look out for systemic risk in the financial sector, especially the ones arising out of the financial conglomerates.
In short, seven pillars of the new Law are:
- Reserve Bank of India: Regulator of Banking & Payments monetary policy.
- Unified Financial Agency: Regulator of financial firms and activities other than banking and payments.
- Resolution Corporation: Deals with closure of distress in firms.
- Financial Redressal Agency: Single window complaint mechanism against financial institutions and intermediaries.
- Financial Stability & Development Council: Recast as statutory body. Will mange systematic risks and development.
- Public Debt Management Agency: Government’s debt manager.
- Financial Sector Appellate Tribunal: Will hear complaints against all financial regulators.
It is apparent by the report and recommendations, the overarching objective of the panel is to create a uniform legal process for financial-sector regulators, who would all be statutorily adequately empowered and therefore effectively pursue protection for the consumer’s interests.