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The finance sector of any economy plays a vital role in the enhancement and development of that economy and thus it is of utmost importance to regulate such financial institutions. In India, we have a multitude of financial regulators to regulate the various financial sectors inter alia the Reserve Bank of India which regulates the money market, financial system and monetary policies; the Securities and Exchange Board of India which is the regulator of the capital market and the Insurance Regulatory and Development Authority of India which regulates the insurance sector.
In order to regulate these financial sectors and bring about better co-ordinaton amongst these sectors a need was felt to develop a super regulatory body. The proposal to create such apex body was first introduced by Mr. Raghuram Rajan in 2008. However it was the tiff between SEBI and IRDAI relating to ULIPs that led to the creation of Financial Stability and Development Council in 2010. FSDC was formulated with main objectives of enhancing inter regulatory coordination, furthering reform agenda and bringing about financial stability.
The FSDC was constituted in December 2010 via a Government of India notification. It is a non statutory body and thus its decisions are merely moral and persuasive in nature. This also ensures that the organisational autonomy of RBI, SEBI and other regulators is not diluted. The first meeting of the Council was held on December 31, 2010. This meeting was chaired by the then Finance Minister Mr and attended by The FSDC shall be chaired by the Finance Minister.
The time line and the events which led to the formation of FSDC is given hereunder:
The issue of financial stability gained gumption ever since the global financial crisis which rocked the world in 2008. Even though India was largely unaffected by this crisis, the issue of stabilisation of financial sector had been highlighted thereon all over the globe.
Financial Stability Board is an international agency which monitors the global financial system and gives recommendations in order to address vulnerabilities which affect such financial systems. In 2010, India joined the Financial Stability Board with a view to strengthen and institutionalise the mechanism of financial sector.
Two of the powerful financial regulators in India are SEBI and IRDA.
SEBI i.e. the Securities and Exchange Board of India deals with the regulation investments in capital markets whereas IRDAI i.e. Insurance Regulatory and Development Authority of India which regulates the insurance sector. SEBI and IRDAI wrangled over the jurisdiction of ULIPs. ULIPs are Unit Linked Insurance Plans and they have the characteristics of both investment as well as insurance.
SEBI contended that ULIPs are of investing nature and so they shall be regulated by SEBI. SEBI thus issued show cause notice to 14 companies and barred them from selling ULIPs without its prior approval.
IRDAI was of the opinion that the jurisdiction of ULIPs does not lie with SEBI and thus ignored the notice of SEBI and continued with the sale of ULIPs.
The Union Financial Ministry had to butt in and conduct a meeting between IRDAI and SEBI officials to restore status quo.
This issue in particular gave impetus to the creation of a super regulatory authority in order to bring about inter-regulatory coordinaton between the financial regulators.
The Financial Stability and Development Council shall be headed by the Union Finance Minister. The other members of the Council shall be as follows:
Thus it can be seen that the Council has representation of all the major financial regulators of India.
The core functions of the Council are:
Additionally the FSDC is also institutionalised to carry on the following functions:
In conclusion it can be said that the Financial Stability and Development Council was set up to act as a super regulator and bring about inter regulatory coordination amongst the varied financial regulators
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