Financial sector Legislative Reforms 20135th February 2021
The Financial Sector Legislative Reforms Committee (FSLRC) set up two years ago to rewrite and review financial sector laws that have become outdated submitted its final report to the finance ministry in March 2013. The Committee has recommended various proposals to protect consumers against mis-selling and fraud. It also suggested proposals for development of the financial sector in India.
The Financial Sector Legislative Reforms Commission (FSLRC) is a body set up by the Government of India, Ministry of Finance, on 24 March 2011, to review and rewrite the legal-institutional architecture of the Indian financial sector. This Commission is chaired by a former Judge of the Supreme Court of India, Justice B. N. Srikrishna and has an eclectic mix of expert members drawn from the fields of finance, economics, public administration, law etc.
Based on substantive research, extensive deliberations in the Commission and in its Working Groups, interaction with policy makers, regulators, experts and stakeholders; the Commission has evolved a tentative framework on the legal–institutional structure required for the Indian financial sector in the medium to the long run. The broad contour of that framework is outlined in the released by the Commission on 4 October 2012.
Based on further feedback on the proposals from stakeholders and deliberations thereon, the FSLRC proposes to complete its Report by March 2013.
Purpose of formation
FSLRC was formed as most legal and institutional structures of the financial sector in India had been created over a century. Many financial sector laws date back several decades, when the financial landscape was very different from that seen today.
There are over 61 Acts and multiple rules and regulations that govern the financial sector. For example, the SEBI (Securities and Exchange Board of India) Act does not give the regulator powers to arrest anyone but tasks it with penalising all market related crimes stiffly. The Reserve Bank of India (RBI) Act and the Insurance Act are of 1934 and 1938 period, respectively.
The Commission was formed to review and recast these old laws in tune with the modern requirements of the financial sector. FSLRC plans to eliminate 25 of the current 61 laws that currently govern the financial sector and amend many others.
The Terms of Reference of the Commission include the following:
- Examining the architecture of the legislative and regulatory system governing the Financial sector in India
- Examine if legislation should mandate statement of principles of legislative intent behind every piece of subordinate legislation in order to make the purposive intent of the legislation clear and transparent to users of the law and to the Courts.
- Examine if public feedback for draft subordinate legislation should be made mandatory, with exception for emergency measures.
- Examine prescription of parameters for invocation of emergency powers where regulatory action may be taken on ex parte basis.
- Examine the interplay of exchange controls under FEMA and FDI Policy with other regulatory regimes within the financial sector.
- Examine the most appropriate means of oversight over regulators and their autonomy from government.
- Examine the need for re-statement of the law and immediate repeal of any out-dated legislation on the basis of judicial decisions and policy shifts in the last two decades of the financial sector post-liberalisation.
- Examination of issues of data privacy and protection of consumer of financial services in the Indian market.
- Examination of legislation relating to the role of information technology in the delivery of financial services in India, and their effectiveness.
- Examination of all recommendations already made by various expert committees set up by the government and by regulators and to implement measures that can be easily accepted.
- Examine the role of state governments and legislatures in ensuring a smooth interstate financial services infrastructure in India.
- Examination of any other related issues.
According to FSLRC, all financial laws and regulators are intended to protect the interest of consumers. Hence, a dedicated forum for relief to consumers and detailed provisions for protection of unwary customers against mis-selling and defrauding by smaller print etc has been recommended.
The FSLRC report proposes certain basic rights for all financial consumers. For lay investors, the report proposes additional set of protections. The Commission has recommended some amendments to existing laws and new legislations. These changes will have to be carefully brought about accordingly.
Some basic protections consumers would expect include that financial service providers must act with due diligence. It is essential to protect investors against unfair contract terms, unjust conduct and protection of personal information. The FSLRC report also recommends fair disclosure and redressal of investor complaints by financial service providers.
Financial Regulatory Architecture Act
The proposed regulatory structure will be governed by the Financial Regulatory Architecture Act that will ensure a uniform legal process for the financial regulators. The finance ministry will unify the regulatory structure before tweaking the legislative structure. It may take two years for the report to be implemented in a phased manner.