The Financial Sector Legislative Reforms Commission (FSLRC) has proposed that financial sector laws be reviewed every three years. It has also suggested judicial review of regulations in its report released last week.
The commission, headed by retired judge B N Srikrishna, said all regulations made under the proposed Indian Financial Code, replacing existing financial laws, must be reviewed by a Unified Financial Agency (UFA) within three years of such regulations being issued.
FSLRC has also recommended that the central government review the rules made by it. Most of the financial laws in India were framed many years ago and are out of touch with the current times. On the other hand, some foreign jurisdictions have a sunset clause of about 10 years.
The review will consist of an analysis of costs and benefits of regulations; an analysis of all interpretations of the regulations made by UFA, Financial Sector Appellate Tribunal (FSAT), any high court or the Supreme Court; and an analysis of the applicability of the regulations to any changes in circumstances since such regulations were issued.
“Every review under this section must be tabled before the board of UFA as soon as possible. UFA must publish the review within 120 days of being tabled before its board,” said the FSLRC report.
According to the recommendations of the FSLRC, the UFA will subsume the Securities & Exchange Board of India, Forward Markets Commission, Insurance Regulatory & Development Authority and Pension Fund Regulatory & Development Authority. Reserve Bank of India will continue to regulate the banking sector for the time being, suggested the panel, formed in 2011 to rewrite and harmonise financial sector laws.
The panel has also recommended judicial review of regulations. At present, judicial review is largely limited to executive actions and regulations are not subject to judicial review. However, in the proposed framework, it would be possible to challenge regulations if the full regulation-making process was not followed or the regulation does not pursue the objectives, or exceeds the powers, or violates the principles that are in the Act.
“The first point of challenge of regulations would be before the FSAT, a specialised tribunal that will be created for the financial sector as a whole. In addition to this, the power of the Constitutional courts to review legislation would of course continue,” the report added.
In his Budget speech 2013-14, Finance Minister P Chidambaram had said the government would act “quickly and decisively” on the recommendations of the commission. He also proposed a standing council of experts to analyse the international competitiveness of the financial sector, periodically examine the transaction costs of doing business in the Indian market, and to provide inputs to government for action.
