Monitoring financial firms

Monitoring financial firms

News:

1. The Financial Resolution and Deposit Insurance Bill, 2017

Important facts:

2. The key features of the Bill:

• The Bill proposes a comprehensive resolution framework for specified financial sector entities and service providers.
• It will deal with bankruptcy in banks, insurance companies and financial sector entities.
• The Bill seeks to give comfort to the consumers of financial service providers in financial distress.
• Its objectives include the maintenance of financial stability during a crisis.
• The Bill lists 11 categories of institutions which would come under the definition of specified service providers.
• The Bill proposes the setting up of a Resolution Corporation by the Central government.
• It would lead to repeal or amendment of resolution-related provisions in legislation, including the repeal of the Deposit Insurance and Credit Guarantee Corporation Act, 1961.
• This would mean the transfer of deposit insurance powers and responsibilities to the Resolution Corporation to streamline the deposit insurance framework for the benefit of retail depositors.
• The government listed the functions of the Resolution Corporation  which includes:
• Protecting the stability and resilience of the financial system, public funds, and consumers of covered obligations up to a “reasonable limit”.
• The Bill also details the powers and functions of the Corporation , which are listed below:

1. To include providing deposit insurance to banking institutions,
2. specifying the criteria for classification of a specified service provider into one of the categories of risk to viability,
3. acting as an administrator for a specified service provider under critical risk,
4. exercising powers in relation to certain termination rights in respect of specified service providers,
5. resolving a specified service provider under critical risk,
6. Acting as a liquidator for a specified service provider.

• The recently enacted Insolvency and Bankruptcy Code, 2016 to deal with the insolvency resolution issues of non-financial entities will be complemented by the proposed Bill.