New Delhi: The finance ministry made it clear that it will call the shots on turf wars between financial sector regulators through a Bill introduced in Parliament on Tuesday. But fresh doubts have arisen about what the law ministry had earlier said on which regulator should be in charge of Ulips (unit-linked insurance plans).
The Securities and Insurance Laws (Amendment and Validation) Bill, 2010, moved by finance minister Pranab Mukherjee in the Lok Sabha, includes a couple of changes to the 18 June ordinance settling the turf war over Ulips. The Bill also stuck to the ordinance’s line that Ulips would be supervised by the insurance regulator, the Insurance Regulatory and Development Authority (Irda).
A joint committee, headed by the finance minister, will be the only dispute resolution body for turf wars, the Bill said, effectively ending the special role the Reserve Bank of India (RBI) has had till now in the coordination body of the four financial regulators.
The Bill, however, amended the ordinance in two ways which seemed to partially offset some of RBI’s misgivings (Mint, 13 July). The finance ministry will not empower itself with the right to bring any issue to the joint committee. Only the four regulators have the right to approach the committee unilaterally.
Also, the RBI governor has been designated vice-chairperson of the joint committee, but powers attached to the post have not been mentioned. Earlier, in the ordinance, the RBI governor was an ordinary member of the committee along with other regulators and two senior officials from the finance ministry.
The 18 June ordinance was primarily introduced to settle a turf dispute between capital market regulator Securities and Exchange Board of India (Sebi) and Irda over jurisdiction of Ulips, a hybrid product.
New doubts, however, have arisen over what the law ministry actually said on the Ulip regulatory issue prior to the ordinance being promulgated.
Mukherjee on Tuesday tabled a paper explaining the circumstances which made the ordinance necessary. According to the paper, the finance ministry asked the law ministry for its opinion after Sebi issued an order on 9 April asking 14 life insurers to register with it.
“The ministry of law and justice opined that if primarily the product deals with insurance and incidentally touches upon the domain of ‘securities’, then Irda has the authority and jurisdiction to deal with that product,” according to the paper.
It seemed to mirror the fundamental premise of Sebi’s 9 April order that Ulips are predominantly an investment scheme similar to mutual funds and not primarily an insurance product which, therefore, gave Sebi the right to bring them under its jurisdiction.
“The act of driving involves complying with multiple different legislations. There is no legal principle that all actions of insurance companies must be fully controlled by Irda,” said Ajay Shah, professor at the National Institute of Public Finance and Policy.
According to Shah, the challenge of financial regulation showed up in the Ulips issue as the life insurance companies had managed the political environment in their favour.