What is FSLRC? How will it change the financial regulation landscape?


The FSLRC report proposes certain basic rights for all financial consumers. For lay investors, the report proposes additional set of protections

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Legislative Reforms Committee (FSLRC) set up two years ago to rewrite and review financial sector laws that have become outdated—submitted its final report to the finance ministry in March 2013.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.

Let’s try to understand the significance of FSLRC and its role.

Formation of the Commission

The Finance Minister in his Budget speech of 2011-2012 announced the formation of FSLRC to rewrite and harmonise financial sector legislations, rules and regulations. The resolution notifying the FSLRC was issued by the government in March 2011.

Chaired by Justice BN Srikrishna, the Commission has a diverse mix of expert members drawn from the fields of finance, economics, public administration, law, etc.

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.

FSLRC moots single regulator

The FSLRC submitted its report in March 2013. It came up with its recommendation spread over two volumes and 439 pages. The Commission has proposed an Indian Financial Code Bill 2013 to create a Unified Financial Authority (UFA) and bring about reforms in financial sector regulations. The panel suggested that SEBI, IRDA, PFRDA (Pension Fund Regulatory and Development Authority) and the Forward Markets Commission (FMC) be merged under one regulator—UFA.

However, RBI (Reserve Bank of India) will continue to be the banking regulator. The new UFA would subsume watchdogs for insurance, capital markets, pension and commodities while letting the RBI continue its supervisory role over the banking industry.

Consumer protection

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.

Judicial review

The panel has recommended judicial review of regulations. The report has suggested a sunset clause of 10 years. In other words, the laws would be reviewed every 10 years. The committee also recommended giving required attention to debt management and setting up a financial redressal agency and a financial stability and development council.


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