Financial Sector Legislative Reforms Commission

  • Financial Sector Legislative Reforms Commission(FSLRC) was set up by the Indian Government in pursuance of the announcement made in Union Budget 2010-11, to help rewriting and harmonizing the financial sector legislation, rules and regulations so as to address the contemporaneous requirements of the sector. The resolution notifying the FSLRC was issued on March 24, 2011. FSLRC had a two year term.
  • The establishment of the FSLRC is the result of a realisation that the institutional foundation (laws and organizations) of the financial sector in India needs to be looked afresh to assess its soundness for addressing the emerging requirements in a rapidly changing world.
  • Today, India has over 60 Acts and multiple Rules/ Regulations that govern the financial sector. Many of them have been written several decades back. For example, the RBI Act and the Insurance Act are of 1934 and 1938 vintage respectively and the Securities Contract Regulation Act, which governs securities transactions, was legislated in 1956 when derivatives and statutory regulators were unknown in the financial system. A Large number of amendments were, therefore, made in these Acts and regulations at different points of time to address various needs. But these have also resulted in their fragmentation, often adding to the ambiguity and complexity of regulations in the financial sector.
  • It was therefore proposed to set up the Financial Sector Legislative Reforms Commission (FSLRC), which would, inter-alia, evolve a common set of principles for governance of financial sector regulatory institutions. The Commission would examine financial sector legislations, including subordinate legislations. The Commission would also examine the case for greater convergence of regulations and streamline regulatory architecture of financial markets.

What is Financial stability and development council (FSDC)?

Financial stability and development council is an apex body which was proposed by the Raghuram Rajan Committee in 2008. It was set up in 2010 as an autonomous body dealing with financial regularities in the financial sector across the country. It is not a statutory body.

Why was it introduced?

  • India has different regulators for various segments of financial sectors, like the RBI for commercial banks and NBFCs, SEBI for the capital market. There should be coordination among these financial sector regulators to ensure better efficiency as well as for avoiding conflicts due to overlapping of functions. For this, the Government has formed the Financial Stability and Development Council in December 2010, with the Finance Minister as the Chairman.
  • The council will act as a co-ordination agency between the various financial sector regulators- the RBI, SEBI, IRDA and the PFRDA. This Council would monitor macro-prudential supervision of the economy, including the functioning and development of large financial multinational companies, and deal with inter-regulatory coordination issues.

Composition of FSDC

The council constitutes of the following:

  • The Chairman of the Council is the union Finance Minister of India and its members which include:
  • Governor of Reserve Bank of India (RBI)
  • Chairman of Securities and Exchange Board of India (SEBI)
  • Chairman of Insurance Regulatory and Development Authority (IRDA)
  • Chairman of Pension Fund Regulatory and Development Authority ( PFRDA)
  • Chairman of Forwards Markets Commission, (FMC) {now merged with SEBI}
  • Finance Secretary and/or Secretary, Department of Economic Affairs, (DEA)
  • Secretary, Department of Financial Services,
  • Chief Economic Adviser.

The Council can invite experts to its meeting if required. The FSDC Secretariat is in the Department of Economic Affairs.

Functions of FSDC

  • Act as an apex level forum to strengthen and institutionalize the mechanism for maintaining financial stability.
  • Enhance inter-regulatory coordination and promoting financial sector development in the country.
  • Focus on financial literacy and financial inclusion.
  • Monitor macro-prudential supervision of the economy.
  • Assess the functioning of large financial conglomerates.