FinMin tells regulators to move on FSLRC proposals

Government-appointed panel proposed a unified regulator for all financial sector laws

The Union finance ministry has asked regulators to voluntarily implement the non-legislative recommendations of the Financial Sector Legislative Reforms Commission (FSLRC). It issued a handbook to guide regulators in developing a uniform understanding of processes and to achieve standardisation.

FSLRC, formed in March 2011 to rewrite and harmonise financial sector laws, gave its report in March 2013.

“There are a number of recommendations in the nature of governance enhancing and do not require legislative changes. It has been decided that in the first instance, financial sector regulators may voluntarily adopt these within a reasonably proximate timeframe,” the ministry stated on Friday.

The government-appointed panel, headed by retired Supreme Court judge B N Srikrishna, had also proposed a unified regulator for all financial sector laws pertaining to markets, insurance, commodities and pension. It, however, proposed to keep banking out of its purview.

While this proposal would need legislative changes and cannot be implemented in a short time frame, the government wants regulators to implement the non-legislative agenda. The guidance handbook has the recommendations, their rationale, suitable examples of global good governance practices and guidance on implementation.

These encompass issues relating to consumer protection for retail customers, a timeline, requirements for framing regulations, notices to regulated entities, transparency in board meetings, reporting, approvals, investigation, adjudication, imposition of penalty and capacity building.

In the handbook the finance ministry said, at present, regulators implement many measures in sectoral silos, with wide divergences in practices and minimum standards. Definitions of key terms and regulatory approaches vary across regulators and sectors.

“The absence of clearly articulated principles, and the excessive reliance on narrowly specified rules reduces predictability and consistency in rule-making and enforcement. This in turn weakens the rule of law, and increases the likelihood and severity of market failures. An efficient financial regulatory framework should aim to harmonise processes and standards across sectors. This reduces problems of regulatory arbitrage, and also creates more robust mechanisms of governance,” it said.

FSLRC had also proposed a review of financial sector laws every three years. It also suggested judicial review of regulations in its report released last week.