Subbarao meets Pranab over Ulips

The Reserve Bank of India (RBI) governor D Subbarao met finance minister Pranab Mukherjee today to convey concern regarding the amendments prescribed in the the Securities and Insurance Laws (Amendment and Validation) Ordinance 2010 brought out by the government to resolve the recent turf war between SEBI and IRDA. The meeting with finance minister was regarding the regulatory ordinance. The central bank has certain reservations regarding it which we conveyed to the minister. The final decision will be taken by him, said Subbarao after the meeting.

The Securities and Insurance Laws (Amendment and Validation) Ordinance 2010 was promulgated by the President to settle the regulatory spat between the two financial sector regulators over the jurisdiction of unit-linked insurance products (ulips). The Ordinance made amendments to four important acts Reserve Bank of India Act 1934,Securities and Exchange Board of India Act 1992,Securities Contract (Regulations) Act 1956 and Insurance Act 1938 and set up a joint committee to address issues related to all hybrid products in the future. The committee will be headed by the finance minister and have heads of all four financial sector regulators.

While the regulatory issue over ulips could have been sorted out by amending just the Insurance,Sebi and SCR Acts,the government chose to tinker the RBI Act as well and bring all hybrid products under the purview of the committee. The central bank is concerned about this joint committees power to step into the regulation of exchange traded instruments like interest rate futures,credit default swaps and currency futures.

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Banking regulator RBI and market regulator Sebi fear that the Ordinance could infringe upon their autonomy and,therefore,they want it to lapse. 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.

The ordinance issued by the finance ministry had also said that in future in case of any disputes over hybrid products the final decision will be taken by a joint committee headed by the finance minister. RBI has certain reservations and concerns which we had expressed in a letter,Subbarao said.