Suggesting far-reaching legislative reforms in the financial sector, a government-appointed panel, on Monday, said key regulators such as the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority (IRDA), the Pension Fund Regulatory and Development Authority (PFRDA) and the Forward Markets Commission (FMC) should be merged into a Unified Financial Agency (UFA).
The Financial Sector Legislative Reforms Commission, headed by former Justice B. N. Srikrishna, has also suggested setting up of a financial redressal agency (FRA) to address consumer complaints against companies across the financial sector.
The Approach Paper, on which the Commission will seek comments from the stakeholders, underlined the need for establishing an independent debt management office (DMO) and a Financial Sector Appellate Tribunal (FSAT) to hear appeals against regulators.
“These changes will alter the Indian financial landscape from eight financial regulatory agencies to seven,” said the Paper, which will form the basis of the report of the Commission that was set up in March, 2011, to re-write the legislations affecting the domestic financial markets.
Five new agencies
Under the existing architecture, the financial sector is regulated by eight agencies: the RBI, SEBI, the IRDA, the PFRDA, the FMC, SAT, deposit insurance agency DICGC and the Financial Sector Development Council (FSDC). As per the proposal, there would be five new agencies besides the RBI and the FSDC. The new ones would be UFA, FSAT, FRA, DMO and Resolution Corporation.
“The unification of regulation and supervision of financial firms such as mutual funds, insurance companies, and a diverse array of firms which are not banks or payment providers, will yield consistent treatment in consumer protection and micro-prudential regulation across all of them,” the Paper says.
At present, while the stock market is regulated by SEBI, the activities in the commodities market are looked after by the FMC. The insurance sector is regulated by the IRDA, while the PFRDA is responsible for managing the pension sector.
The UFA, it said, would deal with all financial firms other than banking and payments. It would also yield benefits in terms of economies of scale in the financial system.
The Paper says there is a need for separating the adjudication function from the mainstream activities of a regulator, so as to achieve a greater separation of powers.
It further says that the laws for the financial sector need to enshrine regulatory independence.
“This involves enshrining an appointment process for senior regulatory staff, fixed contractual terms, controlling the loss of independence that comes from the possibility of extension of term or promotion, removing the power of government to give directions, bringing transparency to board meetings,” the Paper says.
The Commission, as per its mandate, would draft a body of law, which would ensure establishing sound financial regulatory agencies.
The Financial Sector Legislative Reforms Commission (FSLRC) was set up to recast the financial sector legislations in tune with the contemporary requirements of the sector.
At present, there are over 60 Acts and multiple rules and regulations that govern the financial sector.
“The fragmented regulatory architecture has led to a loss of scale and scope that could be available from a seamless financial market with all its attendant benefits of minimising the intermediation cost,” the Approach Paper says.