What is the Indian Financial Code?

The revised draft of Indian Financial Code, released on 23 July 2015, has already made to the headlines, as it proposes to dilute the RBI Governor's power; he may no longer have the power to veto policy rates.

The major change as of now is that there will be four members appointed by the central government and three from RBI, earlier the ratio was other way around.

The IFC bill is expected to table in the Winter session of the parliament. The Parliament will finalise the code, which will eventually find its way to the Union Cabinet for approval.  

What is the Indian Financial Code? How does it work? 

The Financial Sector Legislative Reforms Commission (FSLRC) was set up on March 24, 2011, for re-writing the Code to regulate the financial sector and introduce principles for financial regulation and the constitution, objectives, powers and interaction of financial agencies. Its aim was also to bring about coherence and efficacy in the financial regulatory framework.

In 2013, the commission, headed by Justice BN Srikrishna, submitted its report in two volumes, which included 'Analysis and Recommedation' and 'Draft Law'. The revised draft in twenty parts will strive to regulate financial agencies.

Under this Act, the Financial Sector Appellate Tribunal was established to exercise the jurisdiction, powers and authority conferred upon it.

According to the Act, the general direction and management of the financial agencies will be vested in the respective boards -- the Financial Authority Board for the Financial Authority, the Reserve Bank Board for the Reserve Bank, the Redress Agency Board, with respect to the Redress Agency, the Corporation Board for the Corporation; the Council Board for the Council and the Debt Agency Board, with respect to the Debt Agency.

The Code deals with the establishment of financial agencies, establishment and structure of the tribunal, allocation and regulation of financial services.

A part of it discusses the functioning of financial agencies, such as boards of financial agencies, strength and composition of boards; decision making, advisory councils, accountability mechanisms and funding for financial agencies.

It also mentions the disposal of applications, information and inspections, investigations and offences as executive functions of financial agencies. These financial agencies also have quasi-judicial functions -- administrative law, show cause notices and orders, enforcement actions, procedure for enforcement actions and penalties. 

Moreover, the Code also clarifies financial consumer protection, prudential regulation, contracts, trading and market abuse, capital controls, resolution of financial service providers, financial stability and development council,  development (provisions for review), public debt management  agency, offences, functions, powers and duties of tribunal, miscellaneous, and schedules.