Govt settles issue by issuing ordinance.
The government has brought down curtains on the two-month long tussle between two regulators by ruling that Unit-linked Insurance Products (Ulips) will be governed by the Insurance Regulatory and Development Authority (Irda).
Ulips account for more than 50 per cent of the life insurance business in the country. The money collected is invested in equities.
An amendment favouring Irda over the Securities and Exchange Board of India was signed by President Pratibha Patil on June 18.
On Friday, the law ministry issued an ordinance amending the RBI Act 1934, Insurance Act 1938, Sebi Act 1992 and Securities Contract Regulations Act 1956, clarifying that life insurance business will include any unit-linked insurance policy or scripts or any such instruments. This has thus settled the issue of regulating Ulips.
The ordinance is also likely to nullify a case filed in the Bombay High Court by an investor seeking to get clarity on the jurisdiction of Ulips. A public interest litigation filed in the Allahabad High Court on mis-selling of Ulips is scheduled to be heard on July 8.
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The insurance regulator, headed by J Hari Narayan, now plans to come up with new guidelines on this investment- cum-insurance product on June 21, an Irda official said. Irda will now approve all new Ulips.
"We have to be more careful in clearing products now and will introduce a few more features," said the Irda official who declined to be identified as he is not authorised to speak to the media.
The two regulators have been warring over the jurisdiction over Ulips after Sebi on April 9 barred 14 life insurance companies from selling or renewing Ulips unless they registered with it.
A day later, Irda struck back telling insurers to ignore the Sebi order on the grounds that the capital markets regulator had no jurisdiction over insurance companies.
This resulted in the government intervention and the finance minister asked both the regulators to file a joint application with an appropriate court to resolve the matter.
However, Sebi issued a clarification saying that insurance companies, launching products after April 9, need to register with it.
It was agreed that insurance companies will not launch new Ulips till the court resolved the issue. Subsequently, insurance companies decided to take on Sebi by planning the launch of new Ulips. Though the insurance regulator planned to approve new products, it did not do so over the last two months.
On filing the joint application, Sebi later disagreed over approaching courts for a judgement on the regulatory jurisdiction over Ulips. The Finance ministry then directed law ministry to work over the matter.
| FM to head panel on hybrid products The law ministry ordinance has suggested setting up a committee under the chairmanship of Finance Minister Pranab Mukherjee for resolving all issues of jurisdiction regarding hybrid products, according to a statement by the finance ministry. |
The committee would also include as members, finance secretary to the government of India, secretary at the department of financial services and the chiefs of four financial regulators: the Reserve Bank of India, Irda, Sebi and Pension Fund Regulatory Development Authority. Sebi is also currently battling with the Forward Markets Commission on regulation of futures and options on gold-based exchange traded funds