Press Information Bureau
Government of India
Ministry of Finance
28 th December 2016
Government invites comments of stakeholders and public on the Report of the Financial Redressal Agency by 31st January 2017.
In his Budget Speech of 2015-16, the Union Minister of Finance and Corporate Affairs Shri Arun Jaitley had announced the creation a sector-neutral Financial Redressal Agency (FRA) to address the grievances of retail consumers against all Financial Service Providers (FSPs). This follows from the recommendations of the Financial Sector Legislative Reforms Commission (FSLRC), which had, in 2013, recommended FRA as part of the Regulatory Framework designed to foster customer protection and independence and accountability of Regulators. The Task Force, constituted in June, 2015 as part of the preparatory work for FRA, had submitted its Report on June 30, 2016. The Central Government now invites the comments of stakeholders and public on the Report of the Financial Redressal Agency by 31st January 2017.
Report of the Task Force
The Task Force found that the current framework offers only sub-optimal outcomes for consumers, for reasons which include the following:
Design of the FRA
Organisational DesignOnline GST Certification Course by TaxGuru & MSME- Click here to Join
FRA would be managed by a Board to the appointed by the financial regulators, in consultation with the Government of India (GOI). It would also have an Independent Assessment Officer to consider complaints against the FRA’s redress function arising out of issues related to its standard of service. It would run an efficient process to manage vacancies.
New Financial Consumer Protection Redress Law
The Task Force has stressed that for the FRA, which represents the curative aspects of the consumer protection, to be effective – the preventive aspects, to be implemented by the regulators, need to be simultaneously strengthened. It highlighted the need for basic protections (articulated by FSLRC) to be provided for in law through a new financial consumer protection and redress legislation to (i) empower FRA to provide redress; and (ii) strengthen preventive regulatory framework on consumer protection for implementation by the regulators. This law should be created by adopting the relevant consumer protection provisions from the Indian Financial Code (IFC) 1.1.
Funding Requirement and Business Model
The Task Force has recommended an initial budget of about Rs.100 crore to operationalise the FRA.
The Task Force expects the proposed FRA to be largely cost neutral. The expected additional expenses over current cost would largely flow towards improved access, effectiveness and speed of redress to the retail consumers.
The Task Force has recommended that the regulators in consultation with the FRA should devise a model to levy fees on the FSPs. These levies should be collected by the regulators as part of its existing mechanisms on behalf of the FRA. The fee model should comprise of (i) a base flat fee, (ii) a variable fee based on the size of the entity and (iii) Number of complaints against the entity and the stages at which the complaints are resolved. No fee should be charged to the consumer.
1. Set-up a shell FRA through an executive order. Recruit the leadership and make the requisite budgets available.
2. Procure a Primary Consultant to assist in scaling-up the shell FRA.
3. Empower a statutory FRA through a financial consumer protection and redress legislation. The Task Force has recommended the following transition plan:
i. Phase I – 3 months: Empower the FRA to redress complaints being handled by Insurance Regulatory and Development Authority of India (IRDAI), Insurance Ombudsman, and Pension Fund Regulatory and Development Authority (PFRDA).
ii. Phase II – 1 year : Empower FRA to redress complaints by retail consumers against FSPs regulated by Securities and Exchange Board of India (SEBI) as well as retail complaints that are handled by Reserve Bank of India (RBI) and Banking Ombudsman