A government-appointed panel, on Friday, suggested a super regulator, merging oversight functions of market, commodity, insurance and pension regulators, while leaving the banking business regulation under the Reserve Bank of India.
The Unified Financial Agency (UFA), as suggested by the Financial Sector Legislative Reforms Commission (FSLRC), would subsume the functions of key agencies such as the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority, the Pension Fund Regulatory and Development Authority and the Forward Markets Commission.
Banking operations, monetary policy and payment system would continue to be regulated by the RBI.
The FSLRC, headed by Justice B. N. Srikrishna, in its final report, also suggested doing away with the multiple agency architecture for scanning foreign capital inflows.
At present, the FDI policy is framed by the Department of Industrial Policy and Promotion (DIPP), while FDI proposals are cleared by the Foreign Investment Promotion Board (FIPB) after getting due clearances from various agencies such as the Enforcement Directorate, the Central Bureau of Investigation (CBI) and the RBI.
The report, which was submitted to Finance Minister P. Chidambaram, also suggested setting up of a debt management office (DMO) for raising resources for government expenses.
At present, the government raises funds by issuing bonds through the RBI.
The report, Mr. Chidambaram said, would be made public in 3-4 days. “I intend to brief the Prime Minister either today or tomorrow and in the next 3-4 days it will be placed in the public domain,” he said.
Once the recommendations of the panel are adopted, the government will have to bring in legislative changes in 20-25 existing Acts to facilitate the new structure.
Mr. Justice Srikrishna said the final report was on the lines of the Approach Paper that the panel had come out in October last year.
“Most of them are in line with the Approach Paper. But there are certain issues on which we have now more inputs. So, they have been modified,” he said, adding that the changes could be implemented over a period.
As per the recommendations of the panel, there will be a statutory body, called Resolution Corporation, which will oversee all systematically important financial institutions for generation of early warning signals to promptly deal with any weakness in the system.
Mr. Justice Srikrishna said that Financial Sector Development Council (FSDC) should be given statutory powers. The FSDC is headed by the Finance Minister, with heads of all financial sector regulators as its members.
As per the proposal, there would be three new agencies besides the RBI and the FSDC. These would be the UFA, the DMO and Resolution Corporation.
Mr. Justice Srikrishna said there was no conflict between the proposed two regulators. He also clarified that there would not be a super regulator architecture.
“In the Approach Paper where did you get the term super regulator? Super regulator means somebody who is regulator of all regulators. It was neither in the approach paper nor in the final report. There will be only one regulator,” Mr. Justice Srikrishna said.
In the Budget 2013-14 speech, Mr. Chidambaram had said: “It is our intention to examine the recommendations and act quickly and decisively so that our financial sector stands on sound legal foundations and remains well-regulated, efficient and internationally competitive.”
The FSLRC report is in two volumes.