Note on summary of the recommendations of the Committee to draft a Code on Resolution of Financial Firms

Following is the summary of the recommendations of the Committee.

The Report of the Committee is in two parts:

i. Rationale and Design/Recommendations;

ii. A comprehensive draft Financial Resolution and Deposit Insurance Bill covering all entities.

The Insolvency and Bankruptcy Code, 2016 enacted by the Parliament earlier this year provides for resolution and liquidation of non-financial firms. Recent experience and research have shown that resolution of financial institutions requires a special regime that is faster than any traditional insolvency procedure, where rights of the creditors and other stakeholders can be overridden in the interest of the financial system (including the consumers) and the economy. The draft Bill proposes to establish a special resolution regime for financial firms in line with international best practices.

The draft Bill consolidates the existing laws relating to resolution of certain categories of financial institutions (“covered service providers”), including banks, insurance companies, financial market infrastructures, payment systems, and other financial service providers (excluding individuals and partnership firms) which are presently scattered in a number of legislations, into a single legislation, and provides for additional tools of resolution,to enable the new authority (“Resolution Corporation”) to maintain the systemic stability in the country. The committee has observed that the enactment of the proposed Bill will empower the Resolution Corporation to contribute to the stability and resilience of the financial system by carrying out speedy and efficient resolution of financial firms in distress, providing deposit insurance to consumers of certain categories of financial services, monitoring the Systemically Important Financial Institutions, where so designated by the Central Government; and protecting the consumers of financial institutions and public funds to the extent possible. The Bill also provides for certain special provisions in relation to resolution of central counterparties because of their unique status in the financial system.

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