Formation of a super regulator has been suggested by a panel formed by the Government, advocating merging of functions of regulators of all sectors like markets, insurance, pension and commodity while leaving the banking business regulation under the purview of Reserve Bank of India (RBI).
The Unified Financial Agency (UFA), as suggested by the Financial Sector legislative Reforms Commission (FSlRC), would subsume the functions of key agencies such as SEBI, IRDA, PFRDA and Forward Markets Commission (FMC).
Banking operations, monetary policy and payment system would continue to be regulated by the RBI.
The FSlRC, headed by Justice BN Srikrishna, in its final report also suggested doing away with multiple agency architecture for scanning foreign capital inflows.
The report, Finance Minister P Chidambaram said, will be made public in 3-4 days. “I intend to brief the Prime Minister either today or tomorrow and in next 3-4 days in public domain.”
Once the recommendations of the panel are adopted the Government will have to bring in legislative changes in 20-25 existing Acts to facilitate the new structure.
At present, FDI policy is framed by DIPP, while FDI proposals are cleared by FIPB after getting due clearances from various agencies like Enforcement Directorate, CBI and RBI.
The report, which was submitted to Finance Minister P Chidambaram earlier on Friday, also suggested setting up of a debt management office (DMO) for raising resources for Government expenses. Presently Government raises funds by issuing bonds through RBI.
Srikrishna, who was present on the occasion, said the final report is on the lines of the approach paper that the panel had come out with in October last year.
“Most of them are in line with the approach paper. But there are certain issues on which we have now more inputs. So they have been modified,” he said, adding that the changes could be implemented over a period of time.
As per the recommendations of the panel, there will be astatutory body called Resolution Corporation that will oversee all systematically important financial institutions for generation of early warning signals to promptly deal with any weakness in the system.
Srikrishna said that Financial Sector Development Council (FSDC) should be given statutory powers. FSDC is headed by the Finance Minister, with heads of all financial sector regulators as its members.
As per the proposal, there would be three new agencies besides the Reserve Bank and FSDC. These would be UFA, DMO and Resolution Corporation.
Srikrishna said there is no conflict between the proposed two regulators. He also clarified that there will not be a super regulator architecture.
“In the approach paper where did you get the term super regulator. Super regulator means somebody who is regulator of all regulators. It was neither in the approach paper nor in the final report. There will be only one regulator,” Srikrishna said.
In the Budget 2013-14 speech, Chidambaram had said: “It is our intention to examine the recommendations and act quickly and decisively so that our financial sector stands on sound legal foundations and remains well-regulated, efficient and internationally competitive.”
The FSlRC report is in two volumes -- the first volume is analysis of recommendation and the second part is draft law, which would basically be non-sectoral Indian Financial code for the UFA.
The panel in its approach paper had suggested creation of a financial redressal agency (FRA) to address consumer complaints against companies across the financial sector.
The paper had said the central bank should focus on monetary policy, ensure consumer protection law in the fields of banking and payments. It would remain a separate regulator.
“The unification of regulation and supervision of financial firms such as mutual funds, insurance companies, and a diverse array of firms which are not banks or payment providers, would yield consistent treatment in consumer protection and micro-prudential regulation across all of them,” the Paper had said.
The Commission was set up in March 2011 to re-write the legislations affecting the financial markets in the country.