SUPER-REGULATORY that an additional Council would cause bureaucratic

SUPER-REGULATORY AUTHORITY OF INDIA’S
FINANCE SECTOR

          The  finance sector of any economy plays a vital
role in the enhancement and development of that economy and thus it is of
utmost importance to regulate such financial institutions. In India, we have a
multitude of financial regulators to regulate the various financial sectors inter alia the Reserve Bank of India
which regulates the money market, financial system and monetary policies; the
Securities and Exchange Board of India which is the regulator of the capital
market and the Insurance Regulatory and Development Authority of India  which regulates the insurance sector.

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          In order
to regulate these financial sectors and bring about better co-ordinaton amongst
these sectors a need was felt to develop a super regulatory body. The proposal
to create such apex body was first introduced by Mr. Raghuram Rajan in 2008.
However it was the tiff between SEBI and IRDAI relating to ULIPs that led to
the creation of Financial Stability and Development Council in 2010. FSDC was
formulated with main objectives of enhancing inter regulatory coordination,
furthering reform agenda and bringing about financial stability. 

 

APPREHENSIONS OVER CONSTITUTION OF FSDC

·       
There was a concern that the formation of a
super regulator would dilute the organisational autonomy enjoyed by the Central
Bank and other financial regulators.

·       
It was also feared that an additional
Council would cause bureaucratic delays.

·       
Regulatory hurdles were envisaged upon the
establishment of the Council.

 

CONSTITUTON OF FSDC

          The FSDC
was constituted in December 2010 via a Government of India notification. It is
a non statutory body and thus its decisions are merely moral and persuasive in
nature. This also ensures that the organisational autonomy of RBI, SEBI and
other regulators is not diluted. The first meeting of the Council was held on
December 31, 2010. This meeting was chaired by the then Finance Minister
Mr         and attended by

          The FSDC
shall be chaired by the Finance Minister.

 

AIMS AND OBJECTS OF FSDC

·       
To regulate financial regulators without
jeopardizing their autonomy

·       
To diffuse regulatory conflicts and
blindspots of India’s financial system of multiple regulators

 

NEED FOR FSDC

          The time
line and the events which led to the formation of FSDC is given hereunder:

2008: Global Financial Crisis

The issue of financial stability gained gumption ever since
the global financial crisis which rocked the world in 2008. Even though India
was largely unaffected by this crisis, the issue of stabilisation of financial
sector had been highlighted thereon all over the globe.

2009: Financial Stability Board

Financial Stability Board is an international agency
which monitors the global financial system and gives recommendations in order
to address vulnerabilities which affect such financial systems. In 2010, India
joined the Financial Stability Board with a view to strengthen and
institutionalise the mechanism of financial sector.

 

2010: Dispute between financial regulators
SEBI and IRDA

Two of the powerful financial regulators in India are
SEBI and IRDA.

SEBI i.e. the Securities and Exchange Board of India
deals with the regulation investments in capital markets whereas IRDAI i.e. Insurance
Regulatory and Development Authority of India which regulates the insurance
sector. SEBI and IRDAI wrangled over the jurisdiction of ULIPs. ULIPs are Unit
Linked Insurance Plans and they have the characteristics of both investment as
well as insurance.  

SEBI contended that ULIPs are of investing nature and
so they shall be regulated by SEBI. SEBI thus issued show cause notice to 14
companies and barred them from selling ULIPs without its prior approval.

IRDAI was of the opinion that the jurisdiction of ULIPs
does not lie with SEBI and thus ignored the notice of SEBI and continued with
the sale of ULIPs.

The Union Financial Ministry had to butt in and conduct
a meeting between IRDAI and SEBI officials to restore status quo.

This issue in particular gave impetus to the creation
of a super regulatory authority in order to bring about inter-regulatory  coordinaton between the financial regulators.

 

COMPOSITION OF FSDC

          The
Financial Stability and Development Council shall be headed by the Union
Finance Minister. The other members of the Council shall be as follows:-

·       
The Governor of the Reserve Bank of India,

·       
The Finance Secretary,

·       
The Secretary, Department of Economic
Affairs,

·       
Chief Economic Advisor

·       
the Chairman of the Securities and Exchange
Board of India,

·       
the Chairman of the Insurance Regulatory
and Development Authority of India,

·       
the Chairman of the Pension Fund Regulatory
and Development Authority,

·       
the Secretary, Department of Financial
Services,

·       
the Secretary, Ministry of Corporate
Affairs, and,

·       
the Chairman of the Insolvency and
Bankruptcy Board of India

Thus it can be seen that the Council has representation
of all the major financial regulators of India.

 

FUNCTIONS OF FSDC

The core functions of the Council are:

·       
Enhance inter-regulatory coordination

·       
Furtherance of reforms agenda

·       
Maintain Financial Stability

Additionally the FSDC is also institutionalised to
carry on the following functions:

·       
Bring about Financial Literacy and
Financial Inclusion

·       
Macro-prudential supervision of the economy

·       
Strengthening the regulation of Credit
Rating Agencies

·       
Establishment of Computer Emergency
Response Team

 

SUB COMMITEE OF FSDC

 

 

In conclusion it can be said that the Financial
Stability and Development Council was set up to act as a super regulator and
bring about inter regulatory coordination amongst the varied financial
regulators