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 paper 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.

Context The Financial Sector Legislative Reforms Commission (FSLRC) was constituted by the Government of India, Ministry of Finance, vide a resolution dated 24 March 2011. The setting up of the FSLRC was the result of a felt need that the legal and institutional structures of the financial sector in India need to be reviewed and recast in tune with the contemporary requirements of the sector.

The institutional framework governing the financial sector has been built up over a century. There are over 60 Acts and multiple rules and regulations that govern the financial sector. Many of the financial sector laws date back several decades, when the financial landscape was very different from that seen today. For example, the RBI Act and the Insurance Act are of 1934 and 1938 vintage respectively. The Securities Contract Regulation Act was enacted in 1956, when derivatives and statutory regulators were unknown. The superstructure of the financial sector governance regime has been modified in a piecemeal fashion from time to time, without substantial changes to the underlying foundations. These piecemeal changes have induced complex and cumbersome legislation, and raised difficulties in harmonising contradictory provisions. Such harmonisation is imperative for effectively regulating a dynamic market in the era of financial globalisation.

The piecemeal amendments have generated unintended outcomes including regulatory gaps, overlaps, inconsistencies and regulatory arbitrage. The fragmented regulatory architecture has led to a loss of scale and scope that could be available from a seamless financial market with all its attendant benefits of minimising the intermediation cost. For instance, complex financial intermediation by financial conglomerates of today falls under the purview of multiple regulators with gaps and overlaps. A number of expert committees have pointed out these discrepancies, and recommended the need for revisiting the financial sector legislations to rectify them. The need for complete review of the existing financial sector laws has been underlined to make the Indian financial sector more vibrant and dynamic in an increasingly interconnected world.

The remit of FSLRC, as contained in its Terms of Reference (ToR), comprises the following: Review, simplify and rewrite the legislations affecting the financial markets in India, focusing on broad principles. Evolve a common set of principles for governance of financial sector regulatory institutions. Remove inconsistencies and uncertainties in legislations/Rules and Regulations. Make legislations consistent with each other. Make legislations dynamic to automatically bring them in tune with the changing financial landscape. Streamline the regulatory architecture of financial markets.

The FSLRC has been deliberating on these issues since April 2011 both internally and through consultation/interaction with a wide spectrum of experts and stakeholders. This Approach Paper is the outcome of these deliberations and substantive research work. It shows the contours of the legal-institutional framework that the FSLRC may recommend. It is a provisional document, and the thinking of FSLRC will evolve in coming months, utilising various inputs including the analysis of this document in the public domain.

Terms of Reference and objectives

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.

Members

Commission

Name Position Profile Justice (Retd.) B. N. Srikrishna Chairman Justice Srikrishna is a former judge of the Supreme Court of India (2002–2006), Chief Justice of the Kerala High Court and judge of the Bombay High Court. Post-retirement, among other positions, he has been chairman, Sixth Pay Commission of the Government of India and chairman, Committee for Separate Telangana before taking over as chairman, FSLRC. Justice Srikrishna holds an LL.B. and LL.M., a master's degree in Sanskrit and is proficient in 11 languages. Dr. P.J. Nayak Member Dr. Nayak is currently the managing director and country head of Morgan Stanley India. From 2000 to 2009 he was the chairman and managing director of Axis Bank, a domestic commercial bank. Earlier, between 1971 and 1996, he worked as a civil servant, and was an officer of the Indian Administrative Service. Between 1990 and 1995 he worked in the Department of Economic Affairs in the Ministry of Finance. Dr. Nayak has an MA and PhD in economics from Cambridge University. Justice (Retd.) Dr. Debi Prasad Pal Member Dr. Pal is a senior advocate, practicing in the Supreme Court of India and in different High Courts in India. He is a former Minister of State for Finance and a former judge of the Calcutta High Court. Dr. Pal is a three-time former Member of Parliament, chairman of standing committees of Parliament and a member of The Tenth Finance Commission of India. He holds a D.Litt. in political economy and a Doctor of Law. Smt. K.J. Udeshi Member Smt. Udeshi joined the Reserve Bank of India in 1965 and was appointed as the first woman deputy governor in 2003. She retired from the RBI in October 2005 and has been chairperson of the Banking Codes and Standards Board of India till recently. Smt. Udeshi is a post-graduate in economics. Shri Yezdi H.Malegam Member Shri Malegam is a chartered accountant of international repute. He has been president of the Institute of Chartered Accountants of India, chairman of the National Advisory Committee on Accounting Standards, and is a board member of the Reserve Bank of India for the last 17 years. Prof. Jayant R Varma Member Prof. Varma is currently professor of finance and accounting in the Indian Institute of Management, Ahmedabad. He has a doctorate in management, apart from being a qualified cost accountant. Prof. Varma was a full-time member of the Securities and Exchange Board of India and has been part of several committees set up by SEBI, Forward Markets Commission, Ministry of Finance and Corporate Affairs. Prof. M. Govinda Rao Member Currently director of the National Institute of Public Finance and Policy, Dr. Rao is an eminent public finance expert. He is also a member of the Economic Advisory Council to the Prime Minister of India. In the past he held the positions of Director, Institute for Social and Economic Change, fellow in the Australian National University, economic advisor to Finance Commission etc. Late Shri C. Achuthan Member (till 19 September 2011) Late Shri Achuthan was an eminent legal expert and was the first presiding officer of the Securities Appellate Tribunal (SAT). He was in the board of SEBI, legal adviser in the Ministry of Law and has been chairman / member of number of committees in the financial / corporate sectors. Shri Dhirendra Swarup Member Convenor Shri Swarup, a former civil servant, was secretary (expenditure) and chief budget officer of the Government of India. Thereafter, he was the first chairman of the Pension Fund Regulatory and Development Authority (PFRDA). He was also a nominee director in the Securities and Exchange Board of India SEBI. Shri C K G Nair Secretary, FSLRC Shri Nair is an officer of the Indian Economic Service with 26 years of experience in the areas of industry, transport and finance. Working in the ministries of Consumer Affairs and Finance, he played a significant role in the policy and institutional restructuring of commodity futures market, capital markets and consumer protection in the last 10 years.

Working groups

Due to the scope and depth of research required for the completion of this project, certain sectors were singled out and dedicated working groups (WGs) were created for in-depth analysis. These WGs consisted of sector experts who created their own report with relevant recommendations which were submitted to the Commission.

WG on Banking Name Position Smt K J Udeshi Chairperson Shri YH Malegam Member Shri Janmejeya Sinha MemberShri Aditya Puri MemberMs Naina Lal Kidwai Member Shri Rajiv Lall Member Shri Harsh Vardhan Member Shri M G Bhide Member

WG on Insurance, Pensions and Small Savings

Name Position Shri Dhirendra Swarup Chairman Shri CS Rao Senior Advisor (Former Chairman IRDA) Shri Tarun Bajaj Member Ms Anuradha Prasad Member Shri VS Chauhan Member

WG on Payments

Member Position Profile Dr. PJ Nayak Chairman Managing director and country head of Morgan Stanley India Shri Ranjit Tinaikar Member Partner, Mckinsey Shri Uttam Nayak Member Country manager, VISA Shri Bharat Poddar Member Group head, BCG Shri AP Singh Member JS UIADI Shri Abhishek Sinha Member CEO, EKO

WG on Public Debt Management

Name Position Dr Govinda Rao Chairman Shri Dhirendra Swarup Member Shri Kanagasabapathy Kuppuswamy Member

WG on Securities

Name Position Prof Jayanth Verma Chairman Shri Ravi Narain Member Shri Madhu Kannan Member Shri Neeraj Gambhir Member Shri Jayesh Mehta Member Shri SA Narayan MemberProf KG Sahadevan Member

Research Team