Panel suggests single draft law for financial legislation

New Delhi: The Financial Sector Legislative Reforms Commission, which submitted its report to the finance ministry last week, has suggested a single draft law that will subsume most of the existing legislation governing the financial sector.

add_main_imageTerming the current regulatory financial structure of the Indian financial sector “fragmented and fragile”, the committee headed by retired Supreme Court judge B.N. Srikrishna has suggested a complete overhaul of the statutory framework.

“This involves repealing many of the statutes, substantially amending another set of legislation, and amending certain provisions in other related legislation,” the report said.NextMAds

The final report, largely along the lines of the draft circulated last year, proposes a reworking of the existing financial regulatory architecture into seven agencies.

The report contained four notes of dissent, indicating areas that could become sticking points for the implementation of the recommendations. The commission’s recommendation that the government formulate rules for all inward capital flows proved to be the most contentious.

In the recommended regulatory architecture, the Reserve Bank of India (RBI) will be banking and payments regulator apart from  being the monetary policy agency and a new unified regulator will merge the existing capital markets, insurance, pension fund and forward markets regulators (Securities and Exchange Board of India, or Sebi; Insurance Regulatory and Development Authority, or Irda; Pension Fund Regulatory and Development Authority, or PFRDA; and the Forward Markets Commission).

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.

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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.

The report, which argues for putting consumer protection at the heart of financial sector regulation, calls for a new Financial Redressal Agency for hearing consumer complaints.

It also recommends empowering the existing Financial Stability and Development Council, which would become a statutory body responsible for managing risk and crises in the financial system.

Finance minister P. Chidambaram has promised a speedy implementation of the recommendations of the commission. In his budget speech, Chidambaram had said, “It is our intention to examine the recommendations and act quickly and decisively so that our financial sector stands on sound legal foundations and remains well-regulated, efficient and internationally competitive.”

Making a case for identical treatment for entities operating in the financial sector, the commission advocates repealing or bringing in large scale amendments to legislation that establish statutory financial institutions such as the Life Insurance Corporation Act and the State Bank of India Act.

The government constituted the commission in 2011 to reform financial sector regulations. The panel had submitted its approach paper in October last year. The other members of the commission include D. Swarup, former PFRDA chairman, former deputy RBI governor K.J. Udeshi, Y.H. Malegam, J.R. Varma, and P.J. Nayak, head of Morgan Stanley India.

Read volume one and volume two of Financial Sector Legislative Reforms Commission report.