The Financial Sector Legislative Reforms Commission (FSLRC) had in a report last year proposed a unified regulator for the entire financial sector - markets, insurance, commodities and pension. It had, however, proposed to keep banking out of its purview for now. The Commission had also suggested a common Indian Financial Code for the sector.
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Some officials said the ministry could consider a common law for all to begin with, as formation of a unified regulator would take time, given the opposition from certain quarters. In other words, the chiefs of all these regulators would stay but a new law would replace the different pieces of existing legislation.
FSLRC Member D Swarup said this would help address the problems that arose among regulators - for example, the one between the Securities and Exchange Board of India (Sebi) and the Insurance Regulatory and Development Authority (Irda) over jurisdiction of unit-linked insurance products a few years ago.
"This was our suggestion, too. We have provided the draft; the law ministry has to clear it. The finance ministry can then table it in Parliament," Swarup added.
At present, RBI, Sebi, Irda, the Pension Fund Regulatory & Development Authority (PFRDA) and the Forward Markets Commission (FMC) are governed by their own respective laws.
"The allocation of work was never designed deliberately. It evolved over years through a sequence of piecemeal decisions that responded to immediate pressures," the official added.
FSLRC, headed by retired Supreme Court judge B N Srikrishna, was formed in March 2011 to rewrite and harmonise financial-sector laws. It proposed the Indian Financial Code to replace the country's existing financial laws and proposed a review of these laws every three years, besides judicial review of regulations.
The Commission also gave a draft of the code that addressed concerns like consumer protection, micro-prudential regulation, resolution mechanisms, systemic risk regulation, capital controls, monetary policy, public-debt management, development and redistribution, and contracts, trading and market abuse.
In January, the finance ministry asked regulators to voluntarily implement FSLRC's non-legislative recommendations and released a handbook to guide them in developing a uniform understanding of processes and achieve standardisation.
In the handbook, the finance ministry said regulators at present implemented many measures in sectoral silos with a wide divergence in practices and minimum standards. Definitions of key terms and regulatory approaches varied across regulators and sectors.