The government is mulling bringing on board eminent bankers and former regulators to rewrite its entire financial sector norms and suggest ways to strengthen its oversight system for checking frauds and irregularities.
The high-profile group, to be tasked with reviewing and updating the entire gamut of financial sector regulations, would also include people from legal fraternity and might be chaired by a former Supreme Court judge, sources said.
The government is giving final touches to the proposal for setting up the panel, to be called Financial Sector Legislative Reforms Commission (FSLRC), which was announced by Finance Minister Pranab Mukherjee in his last Budget speech.
The Terms of Reference (TORs) and constitution of the panel are being finalised after a wide consultations with various stakeholders, including the two major financial sector regulators RBI and Sebi.
Besides suggesting changes to the existing rules, the panel might also act as a continuous oversight body for the implementation of the new regulations and keep an eye on any further revisions needed over the time.
Sources said that views of experts outside the government, such as private banking sector representatives and former chiefs of regulatory bodies, would be key for reviewing the financial sector norms, as they have had the first-hand experience of the existing regulations.
The inclusion of experts from outside the government in this panel follows a similar constitution of the much-famed Investment Commission, which also comprised of eminent industry leaders and successfully worked on ways to improve India's image as an investment destination.
The need to rewrite financial sector regulations have become more relevant in the wake of a growing number of cases coming to the light with possible manipulation of existing norms and many rules having become outdated, sources said.
Some of the rules that are too old include RBI Act, framed in 1934, Insurance Act of 1938, Public Debt Act of 1944 and Securities Contract Regulation Act of 1956. These are the key regulations governing the banking, insurance, debt and stock markets, respectively.
There have been a large number of amendments to these regulations since their coming into force, adding to the risks of making them more ambiguous and complex.
Besides, the government is of the view that a larger number of rules and their amendments leads to higher risks of those becoming inconsistent and creating regulatory gaps and overlaps in the oversight mechanism.
The panel would also look at bringing the regulations at par with the current environment, especially in terms of an extensive use of technology in the functioning of financial sector as also in the manipulation of the rules governing it.
