The finance ministry will soon start the intra-ministry consultations on the proposed Indian Financial Code, which would replace 60-odd archaic laws to herald a regime of principle-based, as opposed to the current sector-specific, regulation for the entire financial sector. The idea is to introduce the code in the winter session of Parliament in November-December.
Justice BN Srikrishna had submitted the final draft of the code in June after fine tuning it based on the stakeholders’ comments, sources said. The Financial Sector Legislative Reforms Commission (FSLRC) chaired by Justice Srikrishna, which was set up in March 2011, submitted its report to the finance ministry in March 2013.
“Once the code is fine-tuned, it will be sent to the ministry of law for a consistency check to see if it is in tune with the constitution and in tune with other laws,” a source said.
After the Legislative Department in the ministry of law does a vetting of the draft, it would go to the Cabinet for approval.
“If everything goes according to the time line, the IFC will be introduced in the winter session of Parliament,” another official said.
The Parliament could take about a year’s time to pass the comprehensive legislation as it would have to go through various processes of scrutiny such as by the Parliamentary standing committee.
The FSLRC has recommended revamping the legislative framework of the financial sector regulatory architecture, restructuring of existing regulatory bodies and creating new agencies wherever required.
The draft code seeks to move away from the current sector-wise regulation to a system where the RBI would deal with implementing monetary policy and regulate banking and payment system while a Unified Financial Agency subsumes existing regulators — Sebi, Irda, PFRDA and FMC — to regulate the rest of the financial markets.
Determined to implement the FSLRC recommendations to usher in reforms, finance minister Arun Jaitley announced several measures in the latest Budget such as merger of the Forward Markets Commission with Sebi and the setting up of a sector-neutral Financial Redressal Agency.
However, Jaitley had to withdraw other Budget proposals such as the plan to set up an independent Public Debt Management Agency (PDMA), shifting of government bond market regulation from the RBI to Sebi and delayed the formation of a Monetary Policy Committee that would take decisions on monetary policy. The above proposals were temporarily shelved till next year due to a discord between the RBI and the government.
All these proposals are part of the IFC. Pending the passage of the IFC, the government could bring amendments to RBI Act next year to set up PDMA, shift regulation of bond market to Sebi and set up an MPC.