CII's legal committee pushes for appellate body for financial sector

The legal committee wants all financial regulators, including the RBI, to be under the ambit of the new body

The Confederation of Indian Industry’s (CII) committee on legal services is batting for setting up a Financial Sector Appellate Tribunal (FSAT). Another important suggestion is for better collaborative efforts between the Reserve Bank of India (RBI) and Securities and Exchange Board of India (Sebi) to ensure efficient bad-debt resolution.

 

The CII committee chaired by Lalit Bhasin took inputs from the general counsels of leading financial institutions and law firms before submitting its report to the RBI and the finance ministry.

 

The report calls for expanding the remit of the Securities Appellate Tribunal (SAT) to include the RBI. It observed that while decisions taken by Sebi can be appealed in front of the SAT for specialised and efficient redress, those of RBI’s lack a direct appellate process, requiring writ petitions in High Courts. The Financial Sector Legislative Reforms Commission (FSLRC) that was set up in 2011 - and ceased operations in 2013 - had proposed expanding the SAT as FSAT to enable inclusion of appeals against all financial sector regulators to improve accountability and governance.

 

On debt resolution, the CII report called attention to the fact that the RBI and Sebi differ on allowing asset reconstruction companies to acquire distressed assets from mutual funds. The RBI prioritises systemic stability and debt resolution, while Sebi’s focus is on investor protection and transparency. The CII legal team has made a case for “collaborative efforts, such as pilot programmes with strict valuation and governance norms, (that) could balance these priorities, ensuring efficient debt resolution while safeguarding investor interests and market integrity”.

 

The essence of the report is that the current regulatory landscape is complex, with multiple regulators overseeing various aspects of the financial sector. However, there is a need for regulatory alignment among the finance ministry, RBI, and Sebi “to ensure clarity in financial markets by establishing a unified approach to managing high-risk financial instruments for maintaining investor confidence and systematic stability".

 

It may be recalled that the central bank had set up a Regulations Review Authority 2.0 (RRA 2.0) in 2021 to review the prescriptions internally as well as by seeking suggestions from regulated entities and other stakeholders with a view to their simplification and ease of implementation. RRA 2.0 finalised its report on June 10, 2022. 

• Set up a Financial Sector Appellate Tribunal (FSAT) to bring all financial regulators under it
• Decisions of Sebi can be appealed to SAT, but not those of the central bank
• The Financial Sector Legislative Reforms Commission of 2011 had proposed expanding SAT into an FSAT to improve accountability and governance