The recent tug of war between the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA) over jurisdiction of ULIPs is only the tip of an iceberg. What if the financial regulators, which are supposed to act as the guardians of the country’s financial industry, lock horns in the future?
The Securities and Insurance Laws (Amendment and Validation) Bill, 2010, presented in the Lok Sabha on July 27 is a step towards addressing this question. The Bill, which will replace an earlier government ordinance that allowed insurers to sell ULIPs without seeking the approval of SEBI, seeks to set up a super regulatory body in which all market watchdogs will have representation.
The government issued the ordinance in June to settle the turf war over regulation of ULIPs in favour of IRDA. Through the ordinance, the government also sought to put in place a dispute resolution mechanism, headed by the Finance Minister to settle issues on supervision of hybrid products.
If any differences come up between the government regulators - Reserve Bank of India (RBI), SEBI, IRDA and the Pension Fund Regulatory and Development Authority (PFRDA) – over hybrid products in the future, the new mechanism would be the sole resolving authority.
This joint committee headed by the Finance Minister will have the RBI governor as its vice-chairman. Besides, the chairmen of SEBI, IRDA and PFRDA and the secretaries of the Department of Economic Affairs and the Department of Financial Services will be its members.
The government’s intention may be good, but the idea was not received well by the regulators. When three key regulators – RBI, IRDA and SEBI - expressed apprehensions about the government’s move, only PFRDA welcomed it. The critics said the setting up of a super regulator would put the autonomy of the existing authorities at stake.
However, the government rules out the criticism that the regulators’ autonomy would be compromised. Rather, a joint mechanism would help accelerate coordination among regulators and lead to greater efficiency.
Finance Minister Pranab Mukherjee during his budget speech this year had mentioned of setting up a Financial Stability & Development Council which would be entrusted to monitor businesses and firms, and thereby improve coordination among the financial regulators.
Definitely the Finance Ministry at hindsight had thought of a substitute to preventing any future financial crises. The Chinese government is also contemplating setting up a super regulator which would restructure the government`s role in the financial structure.
It might be cumbersome for the regulatory bodies to bear a guardian at the top but it is high time that the market regulators opened its eyes. The flame of global recession is still charring growth and it is only because of a controlled economic approach that India was sailed out the meltdown.
Keeping the higher ethics of economy, there is no point arguing in against the interference of the government in regulating the market. Rather, taking cue from the global meltdown, this is for the greater benefit that the government plays the watchdog in the functioning of the autonomous bodies. And by restricting the capital flows, the top regulator would harness the otherwise free market.