Government of India Volume I: Analysis and Recommendations

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THE TASKS OF FINANCIAL LAW The grant of authorisation to carry on financial services is the prerogative of the financial regulator. The draft Code provides that while laying down the criteria for carrying on a financial service, the regulator may specify the permissible forms of organisation for a proposed financial service provider. The regulator may therefore decide that cooperative societies from States that have not allowed the Central Government to legislate on the regulation and supervision of co-operative societies carrying on financial services: 1. will not be granted the authorisation to carry out certain financial services, such as banking or insurance, which require intense micro-prudential regulation; or 2. will be granted authorisation to carry on specific financial services subject to certain limitations, such as, restrictions on access to the real-time gross settlement and discount window facilities provided by the central bank and exclusion from the protection of deposit insurance provided by the resolution corporation. The Commission therefore makes the following recommendations with respect to co-operative societies: 1. In consonance with the recommendations on competitive neutrality, co-operative societies carrying on financial services should be subject to similar prudential regulation, consumer protection and resolution frameworks as other entities carrying on similar activities. 2. Using Article 252 of the Constitution of India, State Governments should accept the authority of the Parliament to legislate on matters relating to the regulation and supervision of co-operative societies carrying on financial services. 3. The regulator may impose restrictions on the carrying on of specified financial services by cooperative societies belonging to States whose Governments have not accepted the authority of the Parliament to legislate on the regulation of co-operative societies carrying on financial services. 20 FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION
CHAPTER 3 Structure of the regulator Government agencies are required to perform complex functions in eight areas in finance: consumer protection, micro-prudential regulation, resolution of failing financial firms, capital controls, systemic risk, development, monetary policy and debt management. For these functions to be appropriately performed, well structured Government agencies are required. This is sought to be achieved through a specialised and consolidated set of provisions on regulatory governance in the draft Code. The Commission believes that the requirements of independence and accountability of financial regulators are the same across the financial system and hence it recommends a unified set of provisions on financial regulatory governance for all areas of finance. The objective of the proposed Code on regulatory governance is to create a series of obligations for the Government and for regulators. The Code will cover all functions of the regulator and lay down the principles and standards of behaviour expected from the regulator. It will also provide for a system of monitoring the functions of the regulator with a process to ensure that the regulator is fully transparent and they act in compliance with the best practices of public administration. Table 3.1 captures the recommendations of the Commission for the creation of an appropriate regulatory structure. The Commission recommends that the structure of the regulator be standardised for all financial regulators. However, there may be exceptions required in respect of certain specific functions where the general regulatory processes may not apply. These exceptions to the general process law should be kept to the minimum and generally avoided. 3.1. Selection of the regulator’s board Regulators in India are statutory entities headed by a board. It is the responsibility of the Government to appoint the members on the board of the regulator. The Commission believes that it is necessary to create a statutory system for selecting board members in a fair and transparent manner. It is recommended that the Government should be aided in this process by a professional search and selection committee. This will help ensure that the selected members are competent persons with relevant knowledge and experience. The Commission looked at various systems of selection committees present under Indian laws along with the practice in other common law jurisdictions. Based on this analysis, it recommends that the government should maintain a panel of experts who will serve as members of the selection committee at all times. Their expertise would be FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION 21
Page 1: Government of India _______________
Page 5 and 6: Contents Acronyms . . . . . . . . .
Page 7: CONTENTS 12 Public debt management
Page 10 and 11: ACRONYMS FSAT Financial Sector Appe
Page 13 and 14: Acknowledgement When the Ministry o
Page 15: ACKNOWLEDGEMENT appreciate the effo
Page 18 and 19: EXECUTIVE SUMMARY rience till date.
Page 20 and 21: EXECUTIVE SUMMARY out many processe
Page 22 and 23: EXECUTIVE SUMMARY can issue regulat
Page 24 and 25: EXECUTIVE SUMMARY Alongside this, i
Page 26 and 27: EXECUTIVE SUMMARY to analyse one co
Page 28 and 29: Contracts, trading and market abuse
Page 30 and 31: 5. A new Financial Redressal Agency
Page 32 and 33: EXECUTIVE SUMMARY States GDP as of
Page 34 and 35: 1.2. Deliberations in the Commissio
Page 36 and 37: INTRODUCTION amendments frequently
Page 38 and 39: INTRODUCTION sectoral composition o
Page 40 and 41: INTRODUCTION The Commission has und
Page 43 and 44: CHAPTER 2 The tasks of financial la
Page 45 and 46: THE TASKS OF FINANCIAL LAW This is
Page 47 and 48: THE TASKS OF FINANCIAL LAW ◮ “i
Page 49 and 50: THE TASKS OF FINANCIAL LAW 2.5. Own
Page 51: THE TASKS OF FINANCIAL LAW desirabl
Page 55 and 56: STRUCTURE OF THE REGULATOR Table of
Page 61 and 62: CHAPTER 4 Functions and powers of t
Page 63 and 64: FUNCTIONS AND POWERS OF THE REGULAT
Page 73: FUNCTIONS AND POWERS OF THE REGULAT
Page 76 and 77: CONSUMER PROTECTION The consumer pr
Page 78 and 79: Table of Recommendations 5.4 Princi
Page 80 and 81: CONSUMER PROTECTION using or disclo
Page 82 and 83: CONSUMER PROTECTION providers. The
Page 84 and 85: CONSUMER PROTECTION Table of Recomm
Page 87 and 88: CHAPTER 6 Micro-prudential regulati
Page 89 and 90: MICRO-PRUDENTIAL REGULATION let tha
Page 91 and 92: MICRO-PRUDENTIAL REGULATION Table o
Page 97 and 98: MICRO-PRUDENTIAL REGULATION PRINCIP
Page 99: MICRO-PRUDENTIAL REGULATION the oth
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RESOLUTION payment systems. The cor
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RESOLUTION Commensurately, the corp
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Table of Recommendations 7.3 Intera
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Table of Recommendations 7.5 Powers
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Table of Recommendations 7.7 Fundin
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CHAPTER 8 Capital controls Capital
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CAPITAL CONTROLS 2. Absence of judi
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CAPITAL CONTROLS Table of Recommend
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CAPITAL CONTROLS Table of Recommend
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Table of Recommendations 9.1 Object
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Table of Recommendations 9.3 Establ
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SYSTEMIC RISK filings by financial
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SYSTEMIC RISK Table of Recommendati
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egulatory agencies. In such a situa
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FINANCIAL INCLUSION AND MARKET DEVE
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FINANCIAL INCLUSION AND MARKET DEVE
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Table of Recommendations 11.1 Objec
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Table of Recommendations 11.2 The m
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Table of Recommendations 11.3 Board
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CHAPTER 12 Public debt management 1
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PUBLIC DEBT MANAGEMENT of the publi
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PUBLIC DEBT MANAGEMENT State Govern
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PUBLIC DEBT MANAGEMENT Table of Rec
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CHAPTER 13 Foundations of contracts
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FOUNDATIONS OF CONTRACTS AND PROPER
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14.2. Problems of the present arran
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FINANCIAL REGULATORY ARCHITECTURE T
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FINANCIAL REGULATORY ARCHITECTURE w
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TRANSITION ISSUES On the functional
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TRANSITION ISSUES service providers
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SUMMARY OF RECOMMENDATIONS NOT EMBE
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CHAPTER 17 Conclusion Financial eco
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18.2. Note of dissent by K.J. Udesh
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18.3. Note of dissent by P.J. Nayak
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NOTES OF DISSENT A second difficult
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NOTES OF DISSENT 6. The present arr
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CHAPTER 19 Annexes 19.1. Formation
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ANNEXES 19.2. List of consultants,
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ANNEXES * Did not participate in th
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ANNEXES 19.5. Interactions with aut
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ANNEXES (c) Examine whether informa
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ANNEXES 2. General development of m
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ANNEXES 19. Role of surveyors: (a)
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ANNEXES 6. The law must provide for
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ANNEXES 31. Resolution of insurance
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ANNEXES 3. As shocks can spread thr
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ANNEXES 19.8.2. Terms of Reference
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ANNEXES (d) The Board of the target
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ANNEXES 2. The PDMA should adopt a
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ANNEXES 3. On the issue of co-opera
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ANNEXES 14. Regulators must look at
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ANNEXES 31. The WG recommends the m
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ANNEXES (b) Efficiency of DRT: Suit
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ANNEXES (c) Pledged shares and exem
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ANNEXES 19.11. Interactions by the
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ANNEXES 19.13. Submissions to FSLRC
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Government of India Volume I: Analysis and Recommendations

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