Analysis by FSLRC
With respect to regulators, FSLRC stresses the need for both independence and accountability. The draft Indian Financial Code adopts ownership neutrality, whereby the regulatory and supervisory treatment of a financial firm is the same, whether it is a private or public company. The draft Code seeks to move away from the current sector-wise regulation to a system, where the RBI regulates the banking and payments system and a Unified Financial Agency subsumes existing regulators like SEBI, IRDA, PFRDA and FMC, to regulate the rest of the financial markets.
♤ Regulators will have an empowered board with a precise selection-cum-search process for appointment of members.
♤ The members of a regulatory board can be divided into four categories: the chairperson, executive members, non-executive members and Government nominees. In addition, there is a general framework for establishing advisory councils to support the board.
♤ All regulatory agencies will be funded completely by fees charged to the financial system.
♤ Finally, the FSLRC envisages a unified Financial Sector Appellate Tribunal (FSAT), subsuming the existing Securities Appellate Tribunal (SAT), to hear all appeals in finance. The table below provides an outline of the FSLRC’s proposed regulatory architecture.
Present | Proposed | Functions |
RBI | RBI | Monetary policy; regulation and supervision of banks; regulation and supervision of payments system. |
SEBI FMC IRDA PFRDA | Unified Financial Agency (UFA) | Regulation and supervision of all non- bank and payments related markets. |
Securities Appellate Tribunal (SAT) | Financial Sector Appellate Tribunal (FSAT) | Hear appeals against RBI, the UFA and FRA. |
Deposit Insurance and Credit Guarantee Corporation (DICGC) | Resolution Corporation | Resolution work across the entire financial system. |
Financial Stability Development Council (FSDC) | FSDC | Statutory agency for systemic risk and development. |
New entities | Debt Management Agency | An independent debt management agency. |
Financial Redressal Agency (FRA) | Consumer Complaints |
3.1. Comments Relating to Independence of Regulatory Bodies
There are four arguments in favor of independence:
♤ The regulator is able to set up a specialized workforce that has superior technical knowledge.
♤ This is assisted by modified human resource and other processes, when compared with the functioning of mainstream government departments.
♤ With such knowledge, and close observation of the industry, an independent regulator is able to move rapidly in modifying regulations, thus giving malleability to laws.
♤ The presence of independent regulators improves legal certainty.