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This is a two-part series on the revised Indian Financial Code.
The Financial Sector Legislative Reforms Commission (FSLRC)
was set up in March 2011 to rewrite financial sector laws and bring them in
harmony with current requirements. The focus was to revise the Indian Financial
Code (IFC). The commission, headed by Justice B N Srikrishna, submitted its report
to the government in March 2013.
What is the draft
IFC?
It is a non-sectoral legislation, based on conceptual
analysis of financial regulation in the country till date. The draft brings
together laws governing several sectors of the financial system.
It aims to strengthen accountability and governance in the
financial sector by restructuring existing regulatory agencies and creating new
ones. The Code also regulates the constitution, objectives, powers and interdependency
of the agencies.
Why the need for a
new legislation?
Those who are in favour of the revised IFC argue that:
1. Inconsistencies: The current financial regulatory structure is rife
with with gaps, overlaps and inconsistencies.
2.
Old and irrelevant laws: Many of the financial
sector laws are decades old, when the financial scene was completely different.
The act that led to the RBI’s formation is 80 years old and thus irrelevant in
many aspects.
3.
Absence of regulational clarity: Due to an
excess in the number of financial regulators, jurisdictions overlap. As some
sectors have fallen between the cracks, there is a complete absence of
regulations.
Financial agencies
and their boards
The following financial agencies would be established as per
the revised Code to exercise powers as well as discharge functions. The
management of the affairs and business of the financial agencies will be the
responsibility of their respective boards.
(a) Financial Authority (Financial Authority Board)
(b) Reserve Bank of India (Reserve Bank Board)
(c) Financial Redress Agency (Redress Agency Board)
(d) Resolution Corporation (Corporation Board)
(e) Financial Stability and Development Council (Council Board)
(f) Public Debt Management Agency (Debt Agency Board)
Financial regulatory
architecture
In regulators, the FSLRC emphasises on the need for
independence as well as accountability. The financial regulatory architecture
as proposed by the FSLRC comprises the following 7 agencies:
1. Reserve
Bank of India (RBI): The central bank in its existing structure will
continue, however, with a few modifications. Its proposed functions would
include: Monetary policy, regulation and supervision of banks and regulation
and supervision of payment systems.
2. Unified Financial Agency (UFA): Existing
agencies like the Securities & Exchange Board of India (SEBI), Forward
Markets Commission (FMC), Insurance Regulatory and Development Authority (IRDA)
and Pension Fund Regulatory and Development Authority (PFRDA) will be merged to
form the Unified Financial Agency. It would undertake regulation of financial
firms like mutual funds, insurance companies and others, which are not banks or
payment providers.
3. Financial Sector Appellate Tribunal (FSAT):
The current Securities Appellate Tribunal (SAT) will be included in FSAT. It
would hear appeals against the RBI, the UFA and Financial Redressal Agency.
4. Resolution Corporation: Deposit
Insurance and Credit Guarantee Corporation (DICGC) will be subsumed into the
Resolution Corporation that will carry out resolution mechanism across the
financial system.
5. Financial
Stability and Development Council (FSDC): The existing FSDC will become a
statutory agency that will have modified functions in the field of systemic
risk and development.
6. Financial Redressal Agency (FRA): It is a new entity that will be created to act on consumer complaints against
any financial firm.
7. Public Debt Management Agency (PDMA): It is
also a new agency envisioned as an independent debt management office.
To view part 2 of the article, visit the following link:
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