Allaying RBI’s fears, the government on Tuesday proposed to elevate its governor’s post in the proposed joint mechanism to address the differences among financial regulators over hybrid products. The legislation, Securities and Insurance Laws (Amendment) and Validation, Bill 2010, presented in the Lok Sabha to replace the ULIP Ordinance, also seeks to have a joint committee to resolve the differences among the financial regulators – SEBI, IRDA, RBI and PFRDA. The committee will be headed by Finance Minister Pranab Mukherjee.
The Ordinance on Unit Linked Insurance Products had given the power of regulating ULIP to insurance regulator IRDA.
The Ordinance also mandated the government to set up a committee to decide on the jurisdiction issues between regulators over hybrid products, which contain features that fall under the regime of different watchdogs.
However, RBI had raised certain objections to the proposed joint committee, saying autonomy of regulators will be affected.
The bill, presented by Mukherjee in the Lok Sabha, sought to address concerns by Reserve Bank of India (RBI)by elevating its Governor as Vice-Chairman of the joint commission.
Currently, the inter-regulatory body, called the High Level Coordination Committee on financial sector, is headed by RBI.
The ordinance had treated RBI at a par with other regulators but governor D Subbarao had expressed his reservations, saying parity would dilute the central bank’s authority.
When asked whether the bill has addressed the concerns of RBI, Subbarao said, “No comments.”
The bill retained PFRDA, IRDA and SEBI Chairmen as members of the proposed body.
Stock Market and Insurance regulators SEBI and IRDA were at loggerheads over the jurisdiction ULIPs.
In the midst of a deadlock, the government came out with an Ordinance giving the jurisdiction to IRDA.
Making another deviation from the Ordinance, the bill proposes that in case of future differences among the regulators, the reference shall be made to the joint commission only by the respective regulators and not by the government.
“As both Houses of Parliament were not in session and immediate action was required to be taken, the President promulgated the Securities and Insurance Laws (Amendment and Validation) Ordinance, 2010 on 18th June, 2010,” to resolve differences between the two regulators, SEBI and IRDA, Finance Minister Pranab Mukherjee said while introducing the Bill.