ENEffective Insolvency and Creditor Rights Systems
According to the 2009 report by the CFSA (set up by the Government of India and the RBI), laws covering insolvency and creditors’ rights in India overall comply with the Revised Principles for Effective Insolvency and Creditor Rights Systems issued by the World Bank in 2005. The Committee concluded that the provisions of the Indian laws generally comply with the World Bank Principles; however, shortcomings in the implementation of the laws were found. Specifically, the report shows that in the category “Legal Framework for Creditor Rights” India broadly observed 7 principles and partly observed the principle on ‘Key Elements of Legal Framework for Creditor Rights.’ For the category “Risk Management and Corporate Workout” India observed 15 principles and broadly observed 2 principles on ‘Legislative Framework enabling Workouts,” for the category of “Legal Framework for Insolvency,” India observed 18 principles, broadly observed 12 principles, and partly observed 11. Finally, for the category “Institutional and Regulatory Frameworks” India observed 5 principles and broadly observed 3 principles. Based on the conclusions of this assessment, it was recommended to consolidate the separate laws dealing with insolvency into a single, uniform bankruptcy code to ensure a more transparent, predictable and sound insolvency system. It was recognized, however, that given the complexity of the Indian legal system (with powers being divided between the Union and the States) and the variety of entities that exist, such a consolidation would require amendments to the Constitution and the relevant statutes.
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IDInternational Financial Reporting Standards
According to the assessment of accounting and auditing practices conducted by the World Bank in 2004, considerable efforts have been made to align Indian Accounting Standards (ASs) with the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board. The Institute of Chartered Accountants of India (ICAI) uses IFRSs in developing the national standards, although departing from IFRSs in some cases, if justified. Over the last few years, the ICAI has issued and revised several accounting standards, significantly reducing the gap between ASs and IFRSs. The March 2009 report by the CFSA reiterates the World Bank findings and points out that significant developments have taken place since the last World Bank assessment (in 2004), but gaps still persist. However, the report points out that, overall, the gap between Indian and international standards has been narrowing and is likely to reach full convergence in 2011 when IFRSs are expected to be adopted in India for listed and other public interest entities. The report adds that the Indian accounting framework needs to be further strengthened with respect to sector-specific guidance, the role and responsibilities of the standard-setting authority, and professional training. The report speaks on enhancing the autonomy of the Accounting Standards Board (ASB) (which is part of ICAI) by giving it authority to issue standards while the council of the ICAI confines itself to an administrative role.
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ENPrinciples of Corporate Governance
The first set of corporate governance provisions was published in India in 1998, when the Confederation of Indian Industries, a not-for-profit business association, published a voluntary Code of Corporate Governance for listed companies in India. The World Bank in its 2004 Report on the Observance of Standards and Codes (ROSC) on Corporate Governance practices in India acknowledged that considerable efforts had been made to reform the corporate governance framework and to improve the accountability/responsibility of insiders, fairness in treatment, board practices and transparency. It also stated that the introduction of Clause 49 in Listing Agreements (Annex A) in the year 2000 by the securities regulator, the Securities and Exchange Board of India (SEBI) had clarified many corporate governance related issues. In 2009 the CFSA published its findings of an assessment of India's corporate governance practices. In it, the assessors reiterated the World Bank's findings and describes the establishment of SEBI in 1992 as the single most important event with respect to investor protection in India. However, both the World Bank and CFSA assessments noted significant weaknesses in the enforcement of provisions, particularly with respect to insider trading and related party transactions. This is, in part, attributed to some regulatory overlap between SEBI and the Ministry of Company Affairs. Other weaknesses identified include constraints to participation in Annual General Meetings and the need for corporate governance code for unlisted companies.
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IDInternational Standards on Auditing
As noted in the assessment of accounting and auditing practices conducted by the World Bank in 2004, the Institute of Chartered Accountants of India (ICAI) develops national Auditing and Assurance Standards (AASs) based on the International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB). However, gaps were observed between AASs and ISAs with significant material effect on assurance engagements, the World Bank noted. More recently, the March 2009 report by the CFSA points out that the ICAI remains committed to convergence and is working towards greater harmonization of auditing practices. As a consequence, in line with ISAs, the AASB re-categorized and re-numbered the existing AASs effective April 1, 2008 which were renamed to Standards on Auditing or SAs with identical numbers as the corresponding international standards. To further align its auditing standards with ISAs, the Auditing and Assurance Standards Board (AASB) of the ICAI issued Exposure Drafts on a number of SAs in the clarity format in line with ISAs issued as a result of the IAASB’s Clarity Project. According to the 2009 ICAI self-assessment, the reissuance of the AASs in a new format will be completed by the end of 2010.
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IDAnti-Money Laundering/Combating Terrorist Financing Standard
A report by the Asia/Pacific Group on Money Laundering (APG) in 2005 assesses India's anti-money laundering (AML) and combating the financing of terrorism (CFT) regime. However, this report assesses the AML/CFT regime existing in India prior to March 2005 and does not incorporate, in its ratings, the Prevention of Money Laundering Act (PMLA), since the implementing rules to the PMLA came into effect only in 2005. India passed the PMLA in 2002 to establish a centralized Anti-Money Laundering/Combating Financing Terrorist (AML/CFT) system. The implementing Rules of the PMLA that came into force on July 1 2005 have resulted in increased levels of compliance with the Financial Action Task Force (FATF) Recommendations. As of December 2006, India is a FATF observer and has a two year probationary period to become compliant with FATF requirements to become a full member. Full FATF membership has been a major criteria identified to help India move towards a sufficient AML/CTF regime. In lieu of the APG assessment, a Technical Group comprising of representatives of the Reserve Bank of India, Securities and Exchange Board of India, and Insurance Regulatory Authority of India undertook the task of reviewing the status of AML/CFT standards in India. They concluded that the Indian financial sector has a robust AML regime consistent with the FATF's forty recommendations and nine special recommendations. The report notes that a number of initiatives have also been taken by various regulators in the financial sector based on the findings of the 2005 APG assessment. Nevertheless, the report does not explicitly address India's compliance with the FATF's recommendations. A 2009 report by the FATF names India as one of the jurisdictions that have undertaken to implement the FATF's recommendations and nine special recommendations.
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CPCore Principles for Systemically Important Payment Systems
As mentioned before, in September 2006, the Government of India, in consultation with the RBI, constituted the CFSA. The CFSA in turn constituted an Advisory Panel on Institutions and Market Structure (the Panel), which assessed India's payment systems against the Committee on Payment and Settlement Systems' Core Principles for Systemically Important Payment Systems (CPSIPS). The CFSA report identifies and assesses the real time gross settlement (RTGS) and the High Value Clearing systems as systemically important payment systems (SIPS) in the country. In 2001, the IMF undertook a Financial Sector Assessment Program of India in which it assessed the country's SIPS. The findings of this FSAP was never published, however, it gained mention in the 2009 CFSA report. Accordingly, the FSAP concluded that India’s compliance with the CPSIPS was only partial. Since then, however, several developments have taken place in India's payment systems infrastructure, such as, the implementation of the RTGS system and the passing of a new and comprehensive act on payment settlements. The 2009 CFSA report notes that the Panel assessing India's compliance with the CPSIPS concluded that the RTGS system either observed or broadly observed all the core principles (CPs) and the High Value Clearing system either observed or broadly observed all but one CP. Similarly, in terms of the RBI's (central bank) responsibilities in overseeing payment systems, the 2009 CFSA report notes that the RBI observes three and broadly observes one. In a 2008 survey of payment systems in 148 countries, the World Bank concluded that a then pending Act would substantially improve the country’s legal and regulatory framework with respect to the payment and settlement systems and formalize the RBI’s oversight function. This Act (the Payment and Settlement Systems Act of 2007) was subsequently passed and according to the 2009 CFSA report provides a sound and an explicit legal basis for the regulation and supervision of payment and settlement systems in the country.
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