SEBI informed FinMin of Ulips order a week before

ULIPs — currently regulated by the Insurance Regulatory and Development Authority (IRDA) — are similar to mutual funds but include a small life-cover component. They are being sold in India for almost a decade and are the primary reason for insurance companies emerging a dominant player in the stock markets today.

The Indian Express has learnt that SEBI apprised the finance ministry of this order a full eight days before it was issued. This despite the fact that SEBI is an autonomous regulator and didn’t have to do so.

But its prior notice did give the government a window to resolve the issue rather than ratchet it to a level where an ordinance had to be issued — which is what happened.

SEBI’s order pitted it against the IRDA in a bitter turf war. The two regulators met and also held several meetings under the aegis of the Reserve Bank of India governor-chaired High-Level Committee on Financial Markets but failed to work out an agreement on how ULIPs could be better regulated.

The government finally rejected SEBI’s argument by issuing an ordinance on June 18 stating that these products would be governed solely by IRDA.

“The finance ministry could have just asked SEBI to desist from issuing the order,” said the source who did not wish to be quoted. “SEBI would have desisted.”

In the first week of May,finance minister Pranab Mukherjee had another opportunity to avoid conflict when he called the chairpersons of both IRDA and SEBI for a discussion on ULIPs. “Even then,the advise was to resolve the issue through the legal process,” an official said,pointing out that the finance ministry was all along unsure about who should regulate ULIPs.

Sources also say the finance ministry had first tacitly accepted the SEBI position. But there was no unanimity within the ministry on the issue. “Let’s say,the Department of Economic Affairs (that regulates SEBI) and the Department of Financial Services (that regulates IRDA) were not on the same page here,” said a finance ministry official.

Besides attempting to settle the IRDA-SEBI row,the June 18 ordinance also amended the Reserve Bank of India Act,1934,Insurance Act,1938 and SEBI Act,1992 and the Securities Contract Regulations Act,1956. It set up a joint mechanism under the finance minister to resolve all disputes relating to regulation of hybrid products. This has,however,been strongly opposed by the RBI which says that the ordinance threatens its autonomy. It has asked the government to let the ordinance lapse.