Government to proceed with its recommendations

FSLRC- Task forces set up for resolution corporation, debt management agency, appellate tribunal

After starting to implement suggestions of the Financial Sector Legislative Reforms Commission (FSLRC) which do not require legislative changes, the Union government plans to examine the legislative aspects.

It will form task forces to concretise institutional structures on a resolution corporation (RC), public debt management agency (PDMA), financial sector appellate tribunal (FSAT) and financial data management centre (FDMC), the Economic Survey said.

The move comes despite the Commission's recommendations facing heavy criticism from the central bank.

The Survey said in the meeting of the Financial Stability & Development Council (FSDC) on October 24 last year, it was decided to set up task forces with a project approach to lay the road map for the establishment of new agencies like RC and PDMA, among others.
 

The Survey supported the FSLRC proposals, saying it saw the Indian Financial Code as a transforming agent, bringing changes to the regulatory framework of the financial markets.

The FSLRC report was given to the Union government in March last year; it contained a draft IFC. The Commission distilled the consensus of a decade of expert committee reports into the draft IFC, replacing most existing Indian financial law.

The non-legislative aspects of the recommendations, which both RBI and the government have agreed on, are broadly governance-enhancing principles for enhanced consumer protection, greater transparency in the functioning of financial sector regulators in terms of their reporting system, and greater clarity on their interface with the regulated entities, among others.

"A well-developed thought process for reform lies in the field of finance, where the FSLRC has drafted the Indian Financial Code, which proposes to transform the regulatory framework of Indian financial markets by bringing in a modern legal and institutional framework," the Survey said.

Other recommendations of the Commission, however, have been rapped by Reserve Bank of India Governor Raghuram Rajan. In a recent speech, he described one such idea, of a unified regulator, as "somewhat schizophrenic" and went on to say the report was inconsistent.

On the other hand, the Survey, which said the FSLRC report marked an important milestone in financial reforms, felt the IFC articulated clear objectives for financial regulation, where government intervention is required.

The areas identified are consumer protection, micro-prudential regulation, resolution, systemic risk reduction, market abuse in organised financial trading, consumer redress, debt management, capital controls, and monetary policy.

The FSDC, chaired by the finance minister, with the RBI governor heading a sub-committee, decided that while the draft IFC required Parliament action, a number of changes proposed by FSLRC can be implemented without any legislative changes.

"To provide examples of best practices, and to guide regulators on compliance with the measures recommended by the FSLRC, the ministry of finance has published a handbook on adoption of governance-enhancing and non-legislative elements of the draft IFC," the Survey said.