The proposed Financial Stability and Development Council (FSDC) will have two sub-committees?one for regulatory coordination headed by RBI governor and another for spearheading reforms and ensuring stability, with finance secretary as chairperson.

As earlier reported by FE, finance minister Pranab Mukherjee will chair the council, which will have a permanent secretariat headed by an additional secretary rank official. The council will be created through an executive order.

The government has assured the financial sector regulators, especially the Reserve Bank of India, that the FSDC, which will meet only twice a year, will not infringe upon anyone’s autonomy. According to official sources, the regulatory coordination committee will resolve issues such as the ongoing turf war between the markets regulator Sebi and the insurance regulator Irda over regulation of unit-linked insurance products, which has hastened the process of setting up the FSDC.

Heads of existing regulators?RBI, Sebi, Irda and pension regulator PFRDA ?as well as senior finance ministry officials, including the chief economic advisor, will all be members of FSDC. The FSDC will rework the system to close regulatory gaps, Planning Commission deputy chairman Montek Singh Ahluwalia said on Wednesday, reacting on the Ulip issue.

?The FSDC will not be a super regulator. It will be a sort of regulatory collegium that is multi-disciplinary and multi-agency?, said an official familiar with the matter. The ministry is finalising a draft on FSDC and its structure for public comments.

Sources said the council would monitor activities of large financial conglomerates by assigning their regulatory responsibility to lead regulators. For instance, a financial conglomerate deriving majority of its revenues from banking activities would be regulated by the RBI, instead of the current practice of multiple institutions regulating the conglomerate.

Similarly, Sebi would lead regulate a conglomerate that derives a majority of its revenues from the securities market. The official said the RBI?which currently has a financial conglomerates cell in its department of supervision—has favoured this approach.

The RBI has identified 12 financial conglomerates operating in India. Currently, there is no legal provision in the Indian financial laws or the RBI Act to specifically target regulation of financial conglomerates and holding companies, according to a report of the committee on financial sector assessment, which suggested this role should be legally assigned to the RBI.

The regulatory coordination sub-committee will be largely on the lines of existing high level coordination on capital and financial markets but it will formalise the role hitherto played by the HLCC, the official said.

Though the government has repeatedly assured the HLCC will continue as it is even after FSDC comes into existence, the proposed structure is bound to result in duplication of the role informally played by the HLCC.

The financial sector reforms and stability committee, as the name suggests, will pursue other initiatives, including fostering financial literacy and inclusion. Budget 2010-11 contained the proposal for FSDC.

The council will develop the sector, improve regulatory coordination, enhance financial stability and provide an international interface, according to a presentation made at a recent seminar by KP Krishnan, joint secretary, department of economic affairs in the finance ministry. The council will coordinate on issues such as hybrid products—products that straddle different regulators such as Ulips and products that impact different regulators—-according to Krishnan?s presentation.