New regulation in Indian Financial Sector as per FSLRC

7/27/2019 New regulation in Indian Financial Sector as per FSLRC

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Regulation of Financial Sector

andProposed Reforms

(As per FSLRC)

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Problems(From savers/investors perspectives)

Insignificant Redressal of investors

grievances.

Performance of the regulators has been

disappointing.

Existing Financial Regulators

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To review and rewrite the financial sector

legislations to bring them in tune with

the current / emerging requirements.

(Constituted by GOI, MOF, in March, 2011)

In the chairmanship of

Justice - Shri B. N. Shrikrishna

Primary objective

FSLRCFinancial Sector Legislative Reform Commission

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Recommendations

for

Improvementof

Indian Financial System

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FSLRC

Recommends the

MERGER

ofSEBI, FMC, IRDA

and PFRDA into

single agency

Unified Financial

AuthorityUFA

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Unified Financial

AuthorityUFA

Key role to play:Implementation of the

CONSUMER PROTECTION PROVISIONS

and

MICRO-PRUDENTIAL PROVISIONSfor the entire financial system.

(Exclusion;-Banking and payments)

Benefits :-

Benefit 1

To yield the

benefits in terms

ofeconomies ofscope and scale in

the financial

system.

Benefit 2

It would reduce the

identification of the

regulatory agency

with one sector and

it would help address

the difficulties offinding the

appropriate talent in

government

agencies.

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Unified Financial

AuthorityUFA

Thus, there will be a unification of all

organized financial trading including-equities,

-government securities,

-currencies,

-commodity futures,

-corporate bonds, etc .

This proposed UFA would also take over

the work on organized financial trading

from the Reserve Bank of India (RBI) in

the areas connected with the bond-

currency-derivatives nexus, and from

the FMC for commodity futures.

Proposed Reforms.

The unification of regulation and supervision of financial firms such as

mutual funds, insurance companies and a diverse array of firms that are not

banks or payment systemswould yield consistent treatmentin consumer

protection and micro-prudential regulation across all of them.

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Unified

Financial

Authority

UFA

Financial regulatory architecture suitable for

Indian conditions should consist of seven

agencies, including the RBI and UFA.

RBI will only regulate

and supervise banks and

payment system.

Proposed Reforms.As per recommendations of FSLRC

Non-banking financial

companies (NBFCs) and

Housing Finance Companies

(HFCs) will be regulated and

supervised by UFA.

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The existing FSDC will become a

full-fledged statutory agency,

with modified functions.

RBI will continue to exist,

although with modified

functions.

The existing SEBI, FMC, IRDA, and

PFRDA will be merged into a new

UFA.

The existing SAT will be

subsumed into the FSAT.

Existing DICGC will be

subsumed into the

Resolution Corporation.

A new FRA and PDMAwill be created .

Proposed Reforms.As per recommendations of FSLRC

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Proposed Agencies

RBI

FSDC

FSAT

Resolution

Corporation

FRAPDMA

UFA

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Proposed Agencies

RBI

FSDC

FSAT

Resolution

Corporation

FRA PDMA

UFA

The RBI will perform three functions-

Monetary policy regulation

Supervision of banking in enforcing theproposed consumer protection provisions; the

proposed micro-prudential provisions; and

Regulation and supervision of payment systems.

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RBI

FSDC

FSAT

Resolution

Corporation

FRA PDMA

UFA

UFA will implement the consumer

protection provisions and micro-prudentialprovisions for the entire financial system,

apart from banking and payments.

Proposed Agencies

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RBI

FSDC

FSAT

Resolution

Corporation

FRA PDMA

UFA

The present Securities Appellate Tribunal

(SAT) will be subsumed in FSAT, which willhear appeals against RBI for its regulatory functions, the

Unified Financial Authority, decisions of the Financial Redress

Agency (FRA), against the central government in its capitalcontrol functions and some elements of the work of the

Financial Stability and Development Council (FSDC) and the

Resolution Corporation.

Financial Sector

Appellate Tribunal

Proposed Agencies

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RBI

FSDC

FSAT

Resolution

Corporation

FRA PDMA

UFA

Resolution Corporation:The present Deposit Insurance and Credit

Guarantee Corporation of India (DICGC)

will be subsumed into the ResolutionCorporation, which will work across the

financial system.

Proposed Agencies

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RBI

FSDC

FSAT

Resolution

Corporation

FRAPDMA

UFAPublic Debt Management Agency:

An independent Public Debt

Management Agency is

envisioned.

Proposed Agencies

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RBI

FSDC

FSAT

Resolution

Corporation

FRA

PDMA

UFA

Financial Stability and Development Council;

The existing FSDC will become a statutory agency and

have modified functions.

Proposed Agencies

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P d A i


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RBI

FSDC

FSAT

ResolutionCorporation

FRA

PDMA

UFA

Financial Redress Agency:The FRA is a new agency which will have

to be created in implementing this

financial regulatory architecture. It will set

up a nationwide machinery to become a

one-stop shop where consumers can carry

complaints against all financial firms.

Proposed Agencies

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References:

Volume I: Analysis and Recommendations, FSLRC Report

www.moneylife.com

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Santosh Parashar

Associate Professor, FinanceIAMR, Ghaziabad

Email: [email protected]

Thank You

19Santosh Parashar

Documents

New regulation in Indian Financial Sector as per FSLRC