Finance minister Arun Jaitley has got on board former Supreme Court Judge, Justice B N Srikrishna, to vet and help finalise a uniform Indian Financial Code (IFC), which seeks to replace a multitude of laws and rules related to the country’s financial sector, and move a step closer to putting in place a new regulatory framework for the Indian financial markets.
Justice Srikrishna headed a committee — the Financial Sector Legislative Reforms Commission (FSLRC) — which has already worked out a draft code as part of its final report which was submitted to the government in March 2013.
The committee, constituted in 2011 when Pranab Mukherjee was the finance minister, in its final report two years later recommended an overhaul of over 60 laws governing the financial sector in India, and creating new institutions including a new Unified Financial Authority (UFA), which would have oversight over the securities, insurance and pensions markets and business. The proposal also includes upgrading existing institutions or regulators, including the Reserve Bank of India, and a new legal and institutional structure in tune with the requirements of a modern financial sector.
The FSLRC itself worked out a draft code and the finance ministry is now working on this. The ministry will run the proposed code past Justice Srikrishna after getting inputs from all regulators and other stakeholders and from four groups headed by experts.
Justice Srikrishna told The Indian Express that after the government takes a decision on the recommendations made by the commission headed by him, he would “put the nuts and bolts together”. The FM had sought him out for this and Justice Srikrishna said that he would try and help bring about a convergence of some of the recommendations made in the commission’s report and the government’s objectives. “I have done my job with the commission’s report and it is up to the government to accept our recommendations partially or fully. But I will help in the redrafting of the code,” he said.
At a meeting in Mumbai last month, Jaitley too had said that over the coming days, most of the recommendations of the FSLRC would be implemented. President Mukherjee too had flagged the issue of a delay in implementing the recommendations of the commission, promoting the Prime Minister’s Office to take up the issue with the finance ministry.
A delay could be due to the fact that there is no consensus yet on issues such as the composition of a new monetary policy committee, which has more outside representation — something which the RBI is uncomfortable with. The commission’s recommendation to allow judicial review of rules too has not gone down well with the RBI and the Securities and Exchange Board of India. A decision on subsuming or merging other regulators such as the pensions watchdog — PFRDA and the IRDA — which have oversight over insurance firms may not be taken in haste, those associated with the exercise indicated.
RBI Governor Raghuram Rajan had earlier criticised some of the recommendations of the FSLRC relating to regulators saying that it was somewhat schizophrenic, faddish and impressionistic rather than based on deep analysis. That drew a response later from Justice Srikrishna who pointed out Rajan had altered his views after moving to the RBI as compared to the stance he took when he wrote a report recommending major changes in the financial sector titled Hundred Small Steps.
Apart from rewriting existing financial laws, the FSLRC had sought to close regulatory gaps and overlaps and proposed a new objective and accountability mechanism for the government and regulators. If some of the recommendations of FSLRC are implemented, it would mean moving towards a mandated inflation target within a specified period, a ceding of debt management functions on behalf of the government by the RBI to a new agency and a potentially powerful regulator straddling a large section of the financial markets — stocks, bonds, insurance and pensions. There could also be a new agency to help identify distressed financial firms and swiftly wind them up. On the agenda too is an agency to address complaints from consumers in the sector — be it on deposits, bonds, stocks or insurance — which will punish firms and compensate investors for any shortcomings.
Working towards a new framework
* Justice Srikrishna headed the Financial Sector Legislative Reforms Commission which has already worked out a draft code as part of its final report
* The Indian Financial Code will replace a multitude of laws and rules related to the financial sector and move a step closer to putting in place a new regulatory framework
* The FSLRC, constituted in 2011 when Pranab Mukherjee was the finance minister, in its final report recommended an overhaul of over 60 laws governing the financial sector in India
* It worked out a draft code and the finance ministry is now working on this. The ministry will run the proposed code past Justice Srikrishna