Government of India Volume I: Analysis and Recommendations

RESOLUTION
Table of Recommendations 7.1 Organisation structure of the resolution corporation
The draft Code on resolution establishes a resolution corporation as a statutory body to carry out the resolution of
covered service providers. Covered service provider includes:
1. each financial service provider that makes “covered obligations” as discussed in Table 7.2; and
2. each financial service provider designated by the Council as a SIFI.
The resolution corporation must have representation from across the financial regulatory architecture, including
the central bank, financial regulators, and the Central Government, and must be headed by a chief executive. The
resolution corporation must have representation of independent experts. The resolution corporation must also have
an administrative law member on its board. The establishment of the resolution corporation will be carried out in
alignment with the principles of legal process identified by the Commission.
Accordingly, the board of the resolution corporation will consist of executive, non-executive and nominee members,
to be appointed by the Central Government:
1. the total number of members must not be more than nine (9);
2. the total number of non-executive members must be greater than the total number of executive members;
and
3. three (3) members will be nominee members.
The executive members will include –
1. the Chairperson of the corporation; and
2. an administrative law member.
The nominee members will consist of –
1. one nominee of the Reserve Bank;
2. one nominee of the Unified Financial Authority; and
3. one nominee of the Central Government.
The board will appoint a senior officer of the corporation to act as secretary to the board.
Table of Recommendations 7.2 Objectives
Resolution of covered service providers that are approaching failure should be carried out with the objectives of:
1. Protecting the stability and resilience of the financial system;
2. Enhancing financial market efficiency through efficient pricing and allocation of risk;
3. Protecting consumers of covered obligations up to a reasonable limit; and
4. Protecting public funds.
emerging global arrangements on cross-border resolution. Developments in this regard
may well require amendments to the law in the future, such as to require the resolution
corporation to co-ordinate with its counterparts in other jurisdictions. In this regard, the
Commission recommends that, in five years from now, a committee be set up to review
the emerging consensus in this field and suggest amendments in the legal framework on
resolution accordingly.
7.3. Objectives of the resolution corporation
Designing an effective resolution mechanism requires clarity of objectives in performing
resolution. Table 7.2 outlines the objectives of the resolution corporation that must guide
its functioning.
The increasing size of deposit-taking institutions and the emergence of financial conglomerates
have increased the risk to financial stability from firm failure. To address this
concern, regulatory regimes have tried to redefine the scope of resolution. Internationally,
regulators are now moving to broaden the mandate of resolution authorities to include
any SIFI including banks, holding companies, non-bank financial corporations, and
financial market infrastructure such as payment, settlement and clearing systems. The
Code drafted by the Commission envisages a resolution corporation of similar scope.
FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION 71