The government will bring a bill in the monsoon session to seek Parliament’s sanction for the ordinance it issued to end the dispute between Irda and Sebi over regulation of unit-linked plans, or Ulips, of insurance companies. “The ordinance was approved at the highest level by the Cabinet and we are preparing to introduce the bill,” said a senior finance ministry official.
The government had carried out extensive consultations with key policy advisors, including the Prime Minister’s Economic Advisory Council before it issued the ordinance, indicating that the sledgehammer it used to resolve the dispute was well thought out, another senior government official, privy to the deliberations, told reporters.
The ordinance has proposed that a finance minister-headed committee, which will have all financial sector regulators and finance ministry officials as members, will be the final authority in deciding on the jurisdiction dispute among the regulator.
In fact, the dispute resolution mechanism put in place by the ordinance is on the lines of the regulatory co-ordination body proposed in the Budget, the financial stability and development board, or FSDC.
The bill may give the dispute resolution committee set up through the ordinance the envisaged FSDC shape. The government has been doubly cautious while issuing the ordinance as it does not want to be seen undermining the independence of the financial sector regulators. The final bill will have safeguards to ensure that the independence of the regulators are not undermined by the new law.
Sources close to RBI said the central bank was not in favour of the legislation in its present form as it felt that it would weaken its independence. However, a spokesperson for the central bank said RBI will not comment on the issue. “It will be back to square one if the ordinance is allowed to lapse. If not the dispute between Sebi and Irda, there could be a dispute with some other regulator in future.
The government must ensure that there is clarity,” said the CEO of an insurance company on condition of anonymity.
Speaking to ET, Ashwin Parekh, partner and global leader — financial services, Ernst and Young, said: “There may be two options available before the government. The first can be another ordinance, or it could also look at addressing the concerns of central bank, if it wished to, at the time of introducing the legislation for Parliamentary approval.”
According to legal experts, if the ordinance is allowed to lapse, it will bring back the uncertainty. “The ordinance has already been gazetted. If it is allowed to lapse, the same uncertainty will return on who will regulate what. There is also a public interest litigation pending in the Lucknow High Court on the subject,” said Sanjay Asher, Partner of Crawford Bayley.
“Theoretically, it is possible to make amendments to the ordinance to address the concerns of RBI. But in that case the entire process of getting the ordinance approved by the president and notified will have to be gone through all over again,” added Mr Asher.
The government had promulgated an ordinance on June 18 to amend four major laws — the RBI Act, the Insurance Act, the Sebi Act and the Securities Contract Regulation Act to include Ulips, scripts or any such instruments under the life insurance business, giving Irda exclusive authority over them.