The Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA) disregarded the Finance Minister’s suggestion to “jointly seek a binding legal mandate from an appropriate High Court” on which body had jurisdiction over Unit Linked Insurance Plans (ULIPs). That is why the Government had to issue an Ordinance on the ULIPs issue. This was stated by the Finance Minister, Mr Pranab Mukherjee, in the Lok Sabha on Monday.
Bill passed
The House later passed the Securities and Insurance Laws (Amendment and Validation) Bill, 2010 that seeks to replace the ULIPs Ordinance issued in June 2010. The Ordinance had provided for a Joint Committee to resolve the disputes on jurisdiction over hybrid products among financial regulators — the RBI, SEBI, the IRDA and the PFRDA.
Mr Mukherjee told the Lok Sabha that this Joint Committee will not be a super regulatory body. He also endorsed the Raghuram Rajan Committee’s recommendation that it was premature for India to have a single regulator.
The Finance Minister made it clear that only the financial sector regulators can refer matters to the Joint Committee and that the Bill had changed the earlier position in the Ordinance of allowing the Finance Ministry to refer matters to the Committee.
“Only the financial regulators can now refer matter to the Joint Committee on disputes in respect of hybrid products,” he said, adding that this reference could happen when the high-level committee on capital markets (HLCCM) process fails for hybrid products.
Mr Mukherjee also said that the proposed law, replacing the ULIPs Ordinance, will not interfere in the autonomy of financial regulators.
On the Reserve Bank of India, Mr Mukherjee said that the central bank will come under the purview of the joint committee by virtue of it being regulator of banks and not as a monetary authority.
He pointed out that the RBI currently has two main roles — as the monetary authority and as regulator of banks.
The Finance Minister maintained that ULIPs’ overall business was only insurance and that investments (in securities) formed a component of it. This had prompted the Government to specifically bring ULIPs under the jurisdiction of IRDA.
Mr Mukherjee cited the Law Ministry’s opinion on the matter to justify the Government’s move to bring ULIPs under the IRDA’s supervision.
A Member of Parliament from the Opposition benches noted that only a small percentage of the money collected under ULIPs went for risk cover and the rest was used for investments.
In such a situation, he felt the Government should have brought ULIPs under the SEBI’s jurisdiction.
The Finance Minister also defended the move to include the Pension Fund Regulatory and Development Authority (PFRDA) in the joint committee although the pension regulator had no statutory backing.
“I want this House to pass the PFRDA Bill. But not having statutory cover does not mean that the PFRDA has not come into existence. PFRDA has been created through executive order and resolution. Pension fund has been created and money is being invested. When a regulator has been created, should not the regulator be held accountable?” Mr Mukherjee said.
