Financial sector regulation is a vital service for bringing healthy and efficient financial system in the economy. There are different regulators for various segments of financial sectors, like the RBI for commercial banks and NBFCs, SEBI for capital market etc.
At the same time, there should be coordination among these financial sector regulators to ensure better efficiency as well as for avoiding overlapping of functions. For this, the Government has formed the Financial Stability and Development Council in December 2010, with the Finance Minister as the Chairman. The immediate impulse for the establishment of the FSDC was the tussle between SEBI and IRDA on the regulation of ULIPs.
Basically, the activity of the Council is to coordinate financial and economic regulations through consultations of the heads of the various regulatory organizations.
The FSDC was envisaged for performing two sets of core functions. First is to perform as an apex level forum to strengthen and institutionalize the mechanism for maintaining financial stability. Second is for enhancing inter-regulatory coordination and promoting financial sector development in the country.
Economic Survey 2012 notes the significance of FSDC: – “The FSDC is a non-statutory apex council for coordination among various regulatory bodies, since in our increasingly complex economy, issues arise that straddle multiple financial jurisdictions and so risk falling through the cracks or getting caught in the crossfire.”
Composition of FSDC
The Chairman of the Council is the Finance Minister and its members include the heads of financial sector Regulators (RBI, SEBI, PFRDA, IRDA & FMC {now with SEBI}) Finance Secretary and/or Secretary, Department of Economic Affairs, Secretary, Department of Financial Services, and Chief Economic Adviser. The Council can invite experts to its meeting if required. The FSDC Secretariat is in the Department of Economic Affairs. But later in May 2018, the Council was expanded to include top bureaucrats related to Economic and Financial management. As a result, the total members are now increased to 12 besides the Chairman Finance Minister. Following are the members of FSDC after the reconstitution.
- Governor, RBI,
- Chairman, SEBI,
- Chairman, IRDA,
- Chairman, PFRDA,
- Minister of state responsible for the Department of Economic Affairs (DEA),
- Secretary of Department of Electronics and Information Technology’,
- Revenue secretary,
- Finance Secretary and/or Secretary, Department of Economic Affairs;
- Secretary, Department of Financial Services;
- Secretary, Ministry of Corporate Affairs,
- Chief Economic Adviser and
- Chairperson of the Insolvency & Bankruptcy Board of India (IBBI).
Expansion of FSDC by accommodating new members
Originally, the FSDC members were heads of RBI, SEBI, IRDA and PFRDA and the Chairman – Finance Minister. But in May 2018, the government reconstituted the FSDC by including new members -the Minister of state responsible for the Department of Economic Affairs (DEA), Revenue Secretary, Secretary of Department of Electronics and Information Technology and the Chairperson of IBBI.
The council will act as a co-ordination agency between the various financial sector regulators- the RBI, SEBI, IRDA and the PFRDA. This Council would monitor macro-prudential supervision of the economy, including the functioning of large financial conglomerates, and address inter-regulatory coordination issues.
Function of the FSDC:
1. It will focus on financial literacy and financial inclusion.
2. It aims strengthening and institutionalizing the mechanism of financial stability and development.
3. It will monitor macro-prudential supervision of the economy. It will assess the functioning of the large financial conglomerates.
4. It will address intra regulatory coordination issues.
The FSDC Sub Committee Chaired by the Governor of the RBI
An important wing of the FSDC, in terms of functional responsibility is the Sub committee chaired by the Governor of the RBI. It meets more often than the full Council. All the members of the FSDC are also the members of the Sub-committee. Additionally, all four Deputy Governors of the RBI and Additional Secretary, DEA, in charge of FSDC, are also members of the Sub Committee.
Other wings within the FSDC
There are few other regulatory wings within the FSDC created for specific purposes: the Inter regulatory technical group, Technical Group on financial inclusion and financial literacy, Inter regulatory forum for monitoring financial conglomerates (IRF-FC), Early Warning Group, Working Group on resolution regime for financial institutions and the Macro Financial and Monitoring Group.
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