Regulation of Financial Sector and Proposed Reforms

(As per FSLRC)

Santosh Parashar

Existing Financial Regulators

Problems
(From savers/investors perspectives)

Insignificant Redressal of investors grievances.

Performance of the regulators has been disappointing.

Santosh Parashar

FSLRC
Financial Sector Legislative Reform Commission

(Constituted by GOI, MOF, in March, 2011) In the chairmanship of Justice - Shri B. N. Shrikrishna

Primary objective

To review and rewrite the financial sector legislations to bring them in tune with the current / emerging requirements.

Santosh Parashar

Recommendations for Improvement of Indian Financial System

Santosh Parashar

FSLRC Recommends the MERGER of SEBI, FMC, IRDA Unified Financial andAuthority PFRDA into single agency

UFA

Santosh Parashar

Key role to play:

Implementation of the CONSUMER PROTECTION PROVISIONS and MICRO-PRUDENTIAL PROVISIONS for the entire financial system. (Exclusion;-Banking and payments)

UFA
Unified Financial Authority

Benefits :Benefit 2
Benefit 1 To yield the benefits in terms of economies of scope and scale in the financial system.
It would reduce the identification of the regulatory agency with one sector and it would help address the difficulties of finding the appropriate talent in government agencies.

Santosh Parashar

Proposed Reforms.
This proposed UFA would also take over the work on organized financial trading from the Reserve Bank of India (RBI) in the areas connected with the bondcurrency-derivatives nexus, and from the FMC for commodity futures. Thus, there will be a unification of all organized financial trading including -equities, -government securities, -currencies, -commodity futures, -corporate bonds, etc .

UFA
Unified Financial Authority

The unification of regulation and supervision of financial firms such as

mutual funds, insurance companies and a diverse array of firms that are not banks or payment systems would yield consistent treatment in consumer protection and micro-prudential regulation across all of them.
Santosh Parashar 7

Proposed Reforms. As per recommendations of FSLRC

Financial regulatory architecture suitable for Indian conditions should consist of seven agencies, including the RBI and UFA.

UFA
RBI will only regulate and supervise banks and payment system.

Unified Financial Authority

Non-banking financial companies (NBFCs) and Housing Finance Companies (HFCs) will be regulated and supervised by UFA.

Santosh Parashar

Proposed Reforms. As per recommendations of FSLRC

RBI will continue to exist, although with modified functions.

The existing SEBI, FMC, IRDA, and PFRDA will be merged into a new UFA.
The existing SAT will be subsumed into the FSAT. Existing DICGC will be subsumed into the Resolution Corporation.

A new FRA and PDMA will be created .

The existing FSDC will become a full-fledged statutory agency, with modified functions.
Santosh Parashar 9

Proposed Agencies

UFA
RBI FRA

FSAT
Resolution Corporation

PDMA

FSDC
Santosh Parashar 10

Proposed Agencies
The RBI will perform three functions Monetary policy regulation Supervision of banking in enforcing the proposed consumer protection provisions; the proposed micro-prudential provisions; and Regulation and supervision of payment systems.

UFA

FSAT
Resolution Corporation

RBI FRA

FSDC

PDMA
Santosh Parashar 11

Proposed Agencies
UFA will implement the consumer
protection provisions and micro-prudential provisions for the entire financial system, apart from banking and payments.

UFA

FSAT
Resolution Corporation

RBI FRA

FSDC

PDMA
Santosh Parashar 12

Proposed Agencies
The present Securities Appellate Tribunal

(SAT) will be subsumed in FSAT, which will Financial Sector Appellate Tribunal
hear appeals against RBI for its regulatory functions, the Unified Financial Authority, decisions of the Financial Redress Agency (FRA), against the central government in its capital control functions and some elements of the work of the Financial Stability and Development Council (FSDC) and the Resolution Corporation.

UFA

FSAT
Resolution Corporation

RBI
FRA PDMA

FSDC
Santosh Parashar 13

Proposed Agencies
Resolution Corporation:
The present Deposit Insurance and Credit Guarantee Corporation of India (DICGC) will be subsumed into the Resolution Corporation, which will work across the financial system.

UFA

FSAT

Resolution Corporation

RBI FRA PDMA

FSDC
Santosh Parashar 14

Proposed Agencies

UFA

FSAT
Resolution Corporation

Public Debt Management Agency: An independent Public Debt Management Agency is envisioned.

RBI

PDMA
FRA

FSDC
Santosh Parashar 15

Proposed Agencies
UFA
RBI
Resolution Corporation

FSAT

FRA

FSDC

PDMA

Financial Stability and Development Council;

The existing FSDC will become a statutory agency and have modified functions.
Santosh Parashar 16

Proposed Agencies
UFA
FSAT
Resolution Corporation

RBI
FRA
Financial Redress Agency:
The FRA is a new agency which will have to be created in implementing this financial regulatory architecture. It will set up a nationwide machinery to become a one-stop shop where consumers can carry complaints against all financial firms.

PDMA

FSDC

Santosh Parashar

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References:
Volume I: Analysis and Recommendations, FSLRC Report www.moneylife.com

Santosh Parashar

18

Thank You
Santosh Parashar Associate Professor, Finance IAMR, Ghaziabad Email: sk_parashar@rediffmail.com

Santosh Parashar

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