LS passes Bill to replace Ulip Ordinance

The Lok Sabha today passed a Bill to replace the Ulip Ordinance that seeks to set up a joint mechanism to address the issues of jurisdiction between the financial sector watchdogs after the government assured that autonomy of existing sectoral regulators will not be diluted.

The Securities and Insurance Laws (Amendment) and Validation Bill, 2010, provides for setting up a joint body under the chairmanship of the Finance Minister, and with representations from the four financial sector regulators and the Finance Ministry.

The Bill states that the Reserve Bank Governor will be the vice-chairman of the joint committee. However, there were apprehensions expressed by RBI over its autonomy.

Allaying these fears, Finance Minister Pranab Mukherjee told the Lok Sabha, "it was true there were lots of apprehensions whether we are going to dilute the regulators' independence or autonomy. It will only be in the case of jurisdiction disputes between the regulators that the joint mechanism will be used."

Mukherjee further assured that the joint mechanism will not deal with other areas and only the regulators can refer the matter of jurisdiction to the committee.

Pointing out that the Reserve Bank has two functions-- monetary and regulatory--the minister said, "in no way, we are not interfering with the monetary authority. The RBI is the supreme (as far as monetary matters are concerned)."

Mukherjee said in case of regulatory functions too, only disputes will be handled by the committee. But first efforts would be made to solve these issues bilaterally, he added.

Explaining the rationale for making the RBI Governor the vice-chairman of the proposed committee, he said if the dispute arises between the central bank and other regulators, the arbitrary function cannot be given to the interested party. "That is why, it has been decided that the Finance Minister will be the chairman," he said, adding the RBI Governor's status has in fact been elevated as the earlier suggestion was to make the Governor only a member of the committee.

The minister further said the government has to interfere, if there is contradiction between the regulators and the overall interests of the economy suffers. "No regulator comes to Parliament and explains. It is the finance minister who is accountable to Parliament. Therefore, there must be a place where the buck stops and it is the finance minister where the buck stops", Mukherjee said.

The governmnet issued the Ulip Ordinance on June 18, after the capital markets regulator Sebi and insurance watchdog Irda locked horns over regulation of Unit-linked insurance products (Ulips) and could not seek a joint legal mandate to sort out the issue, as suggested by the Finance Ministry.

The turf war began when Sebi had on April 9 banned 14 life insurers from raising money from Ulips,and Irda countered the ban by asking insurance companies to ignore the market regulator's order.

As the matter could not be resolved, the Finance ministry asked the regulators to get a legal remedy, following which Sebi moved the Supreme Court, which is yet to decide on the matter. In the meanwhile, the government came out with an Ordinance late June, which gave the jurisdiction of regulating Ulips to Irda.

The Ordinance also sought to constitute a joint mechanism between the regulators and finance ministry to sort out any future tussle between financial sector regulators over jurisdiction of hybrid products.

However, Reserve Bank Governor D Subbarao had raised certain objections to the proposed joint committee, saying the autonomy of regulators will be affected. Subbarao had met Mukherjee also on this issue and requested him to let the Ordinance lapse.

To members' query as to why pension regulator PFRDA has been included in the committee, when the Bill to this effect has still not been passed by Parliament, the minister said the pension watchdog exists through an executive order. He also said while earlier finance secretary was suggested to be a member of the joint committee, the Bill provides for the economic affairs secretary to be a member.

Earlier, the statutory resolution to disapprove the Securities and Insurance Laws (Amendment & Validation) Ordinance 2010 was withdrawn by CPI member Prabodh Panda, but he insisted that the question about the need for bringing in the Ordinance before Supreme Court decides on the Ulip issue remains unanswered.

Other members who spoke on the Ordinance included Raguvansh Prasad Yadav (RJD), S Semmali (AIADMK), Vijay Bahadur Singh (BSP) and Bhartruhari Mahtab of BJD.