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Days after Finance Minister Arun Jaitley asked his officials to come up with reform ideas, the ministry is said to be considering a unified law for all financial-sector regulators, including the Reserve Bank of India (RBI), for better regulation. This might function on the lines of the Indian Penal Code, which covers aspects of all states' criminal laws, even as the states have individual control over the police.
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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"At present, pieces of legislation have close connections between agencies concerned and the work they do. But changes in work allocation should not require changes to underlying laws," said a finance ministry official asking not to be named.
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.
