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The Forward Markets Commission (FMC), the commodities market regulator, is all set to implement the recommendations of the Financial Sector Legislative Reforms Commission (FSLRC) in phases. The FMC had proposed several measures to ensure consumer protection and written to exchanges. It has also sought public opinion on them. The FMC has proposed to implement the new guidelines from April this year. Once implemented, these measures will have to be followed by even brokers or intermediaries.
The FMC has, in its discussion paper, said, based on the FSLRC recommendations, it would take more measures to safeguard interests of clients after due consultations.
The FMC has sought views by February. Even in the recent meeting of Financial Stability and Development Council (FSDC), the recommendations were discussed and regulators had agreed to implement them, which don’t require legislative changes in the first phase after due consultations.
The FSLRC had said all financial market regulators should come under one umbrella but that was in the last stage. However, after legislative changes, the appellate authority under all regulators like capital market, commodities, insurance and pension will be common and the Securities and Appellate Tribunal will assume that role.
The FSLRC had proposed Indian Financial Code with a view to converge practices of financial market regulators, including the commodity futures. Earlier, the FMC was under Ministry of Consumer Affairs and hence there was opposition to convergence. Now, the NSEL scam has prompted the government to move the regulator under the ministry of finance and hence some procedural convergence has already began and recently the FMC has issued a discussion paper based on the recommendation.
The FMC has also asked exchanges and commodity market intermediaries to identify separate category of retail clients consisting of individuals and small and medium enterprises who participate in commodity futures.
The FMC has specifically asked exchanges and intermediaries to provide additional protection if they needed it.
The regulator has proposed to review all existing regulations, guidelines, circulars in view of the ensuring better consumer protection, KYC (know your client) processes and make commodity market intermediaries more responsible and transparent towards dealing with their clients in redressing their grievances, maintaining confidentialities of their data and records.
Unlike capital market, the commodity market is not that mature or deep and wide enough because several reforms are pending, including empowering the regulator and giving it a fully autonomous and statutory independence.
However, the Ministry of Finance has decided to implement FSLRC report. It has already told all regulators to do so.
Some recommendations which do not require legislation include bringing transparency in decision making and board meeting process of all regulators. The capital market regulator, Sebi, and the insurance regulator, Irda, disclosed their agenda and minutes of board meeting on their website and the FMC is likely to follow suit. The commodity regulator has already decided to make all important decisions, including its orders and instructions, public and several of them are under implementation. In the discussion paper, it has prohibited exchanges and intermediaries from unfair, misleading and abusive conduct. It has said unfair terms in the contracts between intermediaries and clients would be treated as void.
The term ‘unfair’ is defined as something that is creating imbalance in the rights of parties and detrimental to the interests of the clients.
