Bill proposes to appoint RBI governor as joint panel’s vice-chairman.
Following opposition from the Reserve Bank of India (RBI), the government today introduced a Bill in Parliament that proposes to elevate the central bank governor to the level of vice-chairperson of the joint mechanism to settle regulatory disputes over hybrid financial products.
The Bill, which will replace the contentious Securities and Insurance Laws (Amendment and Validation) Ordinance, 2010, which had proposed a joint mechanism headed by the finance minister. The RBI governor had raised concerns over the government’s proposal, arguing that it would affect regulatory independence. He had suggested that the Ordinance be allowed to lapse and the high-level coordination committee on financial markets continue to be the forum for regulatory coordination.
The government, at the behest of the Prime Minister, then suggested that the RBI governor be made the vice-chairperson, while the heads of the Insurance Regulatory and Development Authority (Irda), Securities and Exchange Board of India (Sebi) and the Pension Fund Regulatory and Development Authority be appointed as members.
| REGULATORY COORDINATION # The Bill introduced in Parliament will replace the contentious Securities and Insurance Laws (Amendment and Validation) Ordinance, 2010 # The RBI governor had earlier suggested the Ordinance be allowed to lapse and the high-level coordination panel on financial markets continue to be the regulatory coordination forum # The government has built in another safeguard into the Bill which proposes that a reference to the joint mechanism can be made by one of the regulators # The Ordinance was issued after a long-drawn battle between Sebi and Irda over regulating Ulips, hybrid products that have insurance and investment built into them |
When asked, RBI Governor D Subbarao, who had earlier admitted to his concerns, refused to comment on the issue today.
The government has built in another safeguard into the Bill which proposes that a reference to the joint mechanism — which will also have economic affairs and financial sector secretaries as members — can only be made by one of the regulators.
The Ordinance was issued after a long-drawn battle between Sebi and Irda, locked in a legal dispute over regulating unit-linked insurance plans (Ulips), hybrid products that have insurance and investment built into them. The stated purpose of the Bill is to clarify that life insurance business also includes unit-linked policies and make the necessary changes to the Insurance Act, the Securities Contracts (Regulation) Act and the Securities and Exchange Board of India Act.
In April, Sebi had barred 14 insurance companies from selling new Ulips and also banned them from renewing existing policies till they registered with it. Sebi had argued that the product was similar to mutual fund schemes on offer. Irda then asked the life insurers to ignore the Sebi order and carry on with business as usual. The regulatory turf war resulted in the government stepping into the arena.
Also read: JULY 8: RBI moves FinMin to secure autonomy
