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Stopping kids from fighting

Stopping kids from fighting
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First Published: Sun, Jun 20 2010. 11 20 PM IST
Updated: Mon, Jun 21 2010. 08 12 AM IST
There will be those who say that the finance ministry should have taken a few months ago the ordinance route it did on Saturday to address the spat between two regulators.
In many ways, the fight between the stock market regulator, the Securities and Exchange Board of India (Sebi), and the insurance regulator, the Insurance Regulatory and Development Authority (Irda), on the regulation of unit linked insurance plans or Ulips—insurance policies with characteristics of mutual funds—was the first one between two financial regulators in India and it was a little surprising that, rather than address it, the finance ministry initially asked the regulators to approach the courts.
In hindsight, it is clear that the ministry never had any idea to remain a spectator, while the unedifying spectacle of two regulators fighting it out in the courts played out.
The interesting thing about the ordinance, however, isn’t its existence, but the timing of its passage.
It comes after the finance ministry put out a revised draft of the Direct Taxes Code, ensuring that Ulips were treated as investment and not insurance products for the purpose of taxation.
And it comes after Sebi and other regulators have put or started putting in place guidelines that will prevent mis-selling of financial products and stagger the commission payable on them.
Most insurance products in India are sold on the tax-saving platform and there have been several complaints that banks and other resellers sold Ulips to people who had no understanding of what they were buying. The motivation for these sellers came from the commissions paid by the insurance firms; sometimes, 70% of the first year’s premium went towards them.
The new guidelines (some are still in the making) and the new tax code (when it is passed) will likely ensure that Ulips are no longer mis-sold and no longer remain as attractive to investors as they once were. That should address the primary concerns of Sebi—protecting investors.
This would mean that the legal battle between Sebi and Irda is no longer relevant. Indeed, either the stock market regulator or the Supreme Court where the case is pending (or both) may acknowledge as much on Monday. Rather than wait for that, the government has chosen to act through an ordinance.
The judiciary or the executive: who should have settled the Ulips dispute? Tell us at views@livemint.com
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First Published: Sun, Jun 20 2010. 11 20 PM IST
More Topics: Ourviews | Sebi | Irda | Ulips | Direct Taxes Code |