Sebi,RBI miffed over ‘high-power’ joint panel

RBI and Sebi fear last month's Ordinance to resolve the dispute over regulating ULIPs could infringe upon their autonomy.

Banking regulator RBI and market regulator Sebi fear last month’s Ordinance to resolve the dispute over regulating unit-linked insurance plans (Ulips) could infringe upon their autonomy and want it to lapse. What has particularly annoyed the two regulators is the formation of a joint committee with statutory powers to decide upon future disputes over such hybrid products.

The regulators also point out that the Ordinance is at odds with the commitments on regulatory independence made by New Delhi at multilateral forums like the G-20 where it has a prominent and respected role. If Parliament ratifies the Ordinance,the joint committee could turn out to be a super-regulator a move tantamount to backdoor entry of the proposed Financial Stability and Development Council (FSDC) with binding powers not envisaged even in finance minister Pranab Mukherjee’s budget speech.

In fact,Mukherjee had repeatedly clarified that the FSDC would not in any way dilute regulatory autonomy. However,unlike the existing informal high-level coordination committee (HLCC) headed by the RBI governor,the Ordinance says the joint committee’s decisions will be binding on financial sector regulators. The Ordinance also requires the committee to give its view on a matter to the central government within three months.

The HLCC is an informal committee that can discuss matters and persuade regulators. But in the final analysis,it is not in a position to impose its will. That is why a more formal body,like this committee with binding powers was considered necessary, a finance ministry official said. The RBI is understood to have expressed the view that the decision to amend important laws,for example the RBI Act,in a such a hush-hush manner could set a bad precedent,especially now that India’s views on financial sector are sought at forums like the G-20.

According to a senior official,Sebi has extended its allegiance to the RBI over the issue of protecting regulatory autonomy and would like the Ordinance to lapse. It has,however,not written to the ministry in this regard. Since it is an interested party in the matter,Sebi cannot communicate its opposition to the government,the official said. Sebi officials could not be reached for comment.

The Ordinance will lapse if the government does not bring a Bill in this regard in the Monsoon Session of Parliament. Barring insurance regulator Irda,for whom the Ordinance has secured its turf,other financial sector regulators haven’t particularly liked this approach to resolve the Ulip dispute.

Sources say Sebi and RBI are unhappy that the consultation-based approach which is usually deployed by the ministry and the regulators was somewhat overlooked in this particular case. But officials in the finance ministry argue that not taking a binding decision and leaving the matter to the courts could have been a time-consuming process,hurting Ulip holders.