The unsolved mysteries around the Securities and Insurance Laws (Amendment and Validation) Ordinance, 2010, passed by the President on 18 June, just grow. The ordinance amended four Acts of Parliament—the Reserve Bank of India Act, the Securities and Exchange Board of India (Sebi) Act, the Securities Contract (Regulation) Act and the Insurance Regulatory and Development Authority (Irda) Act—and handed the jurisdiction of essentially an investment-driven product to the insurance regulator. The ordinance also refers further disputes to a joint committee, headed by the finance minister.
There are three issues with the use, manner and content of this ordinance. First, an ordinance is used under circumstances of urgency and in times where public interest demands government action that cannot wait for Parliament to be in session. It has a maximum life of six months and remains in force till a Bill to the effect is cleared by both houses of Parliament . The Ulip issue has been simmering for more than four years in public debate. The Sebi-Irda tussle has been alive under the surface for years and publicly since December 2009. The government has in its armoury a weapon called a “direction” that it could have used at any time to get independent regulators to do what it wants. This option was not used. Next, the manner in which the ordinance was passed is a mystery. It was after it got the green signal from North Block that Sebi went ahead to seek a legal solution to the issue of who should regulate Ulips. The finance minister is on quote saying that the Supreme Court will solve this issue. What happened between May and June for the government to change its mind? And to rule in favour of a regulator which has been under fire by the public for allowing institutional cheating of investors? Subsequent changes in rules by Irda prove that there was something wrong in the first place with its rules.
The third issue is around the lack of consultation with principal stakeholders to frame the content of the ordinance. It seems that all regulators, other than one (no prizes for guessing which one ), were kept out of the discussion. There is enough academic muscle within the government to decipher product structure and basic hygiene factors that market-linked products need.
As a reader wrote on the livemint site: “When the whole battle was about transparency, the solution came in the most opaque manner.” Unfortunately, the manner, timing and content of the ordinance point to reasons that in turn point to all that is wrong with our system.
Ordinance raj: a fine way to tame regulators? Tell us at firstname.lastname@example.org