Financial sector laws to be rewritten

New inter-regulatory body planned.

The government today announced an overhaul of the regulatory and legislative mechanism for the financial sector.

To begin with, the Financial Stability and Development Council will be set up to monitor the macro prudential supervision of the economy — including supervision of large financial conglomerates — and deal with inter-regulatory co-ordination.

In addition, Finance Minister Pranab Mukherjee said financial sector laws would be rewritten to bring them in line with the current requirements. Barring the law governing the securities market, most laws such as the Reserve Bank of India Act, the Banking Regulation Act and the Insurance Act were written at least 60 years ago.

“There is scope for regulatory conflict like the one you are seeing between the insurance regulator and Sebi (Securities and Exchange Board of India) over unit-linked plans. While laws have undergone amendment, the best way to deal with it is to rewrite them,” said a finance ministry official.

The issue of inter-regulatory co-ordination has been a bone of contention between the Reserve Bank of India, other regulatory agencies and the finance ministry. At present, an informal system, which involves regulatory interaction through the high-level coordination committee on financial markets (HLCC), is in place. The panel is headed by the RBI governor.

According to the proposal formulated by the government, and discussed at the last HLCC meeting, a formal set-up was proposed. But, it was not finalised as RBI Governor D Subbarao had some reservations.

“It (the announcement) does not convey that the HLCC will be done away with… Who will chair it will be put in public domain after some time,” said Finance Secretary Ashok Chawla.