Compliance to Regulations
Working on a proposal given by the Financial Sector Legislative Reforms Commission (FSLRC), the government is considering the formation of a unified financial regulator plan as a roadmap for the country’s future. The finance ministry has set up taskforces on four new agencies namely the Public Debt Management Authority, a Unified Financial Sector Appellate Tribunal, a Resolution Corporation as well as a Financial Data Management Centre in order to take forward the long pending financial reforms neglected by the previous government. The government has given a go ahead to the plans even as the RBI governor Raghuram Rajan made public his criticism for the new agencies and their formation.
Need for a New Regulator:
The Financial Sector Legislative Reforms Committee (FSLRC) was set up in 2011 in order to foresee the evolution of the Indian financial sector in the short term and long term. In order to protect consumers against mis-selling and fraud, the committee recommended a case for a change in the financial regulator landscape enabling strict implementation of laws. The Commission has proposed an Indian Financial Code Bill 2013 to create a Unified Financial Authority (UFA) where Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA), PFRDA (Pension Fund Regulatory and Development Authority) and the Forward Markets Commission (FMC) will be merged under one regulator known as the Unified Financial Authority. The committee has made no changes to the banking regulator mechanism where the Reserve Bank of India or RBI would continue to be the prime banking regulator of the country.
Financial Sector Legislative Reforms Commission Recommendations:
- RBI: continues to be the banking regulator
- Unified Financial Authority (UFA): new regulator for financial firms other than banks and nbfcs
- Financial Stability and Development Council (FSDC): a body to manage systemic risk
- Public Debt Management Agency: new debt managing regulator
- Financial Sector Appellate Tribunal: new consumer complaint body against all financial regulators
Possible impact of the new unified financial sector regulator:
The proposed regulatory structure when put in place is likely to be governed by the new Financial Regulatory Architecture Act ensuring a uniform legal process for the financial markets and each financial market regulator. The Indian financial sector today is ruled by 61 Acts and multiple rules and regulations. As the country moves towards a new era, the new norms are likely to offer a more clear financial system with dedicated laws and consumer protection system to protect the markets as well as interests of the common man.
Single regulator a boon for consumer protection:
The Financial Sector Legislative Reforms Committee or FSLRC has made a special emphasis on providing consumer protection against any financial wrong doing. Protecting consumer interest has been the paramount reason behind such a massive possible shuffling of the financial sector watchdogs. FSLRC has proposed certain basic rights that must be put in place for all financial consumers including the formation of a dedicated financial sector appellate tribunal which would act as a new consumer complaint body against all financial regulators.