The Reserve Bank of India, the country's central bank, and stock market regulator Securities and Exchange Board of India want last month's ordinance to resolve the dispute over regulating unit-linked insurance plans (ULIPs) to be permitted to lapse, as they fear it could infringe upon their autonomy, according to a report.
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. The government is slated to bring a bill in the monsoon session to seek Parliament's sanction for the ordinance it issued to end the dispute between the Insurance Regulatory and Development Authority of India and SEBI over regulation of ULIPs issued by insurance companies.
According to reports, the RBI and SEBI feel that 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.
The government had carried out extensive consultations with key policy advisors, including the prime minister's economic advisory council, before it issued the ordinance, indicating that the move was well thought out, according to The Economic Times quoting an unnamed senior government official privy to the deliberations.
The ordinance has proposed that a finance minister-headed committee, which will have all financial sector regulators and finance ministry officials as members, will be the final authority in deciding on the jurisdiction dispute among the regulators.
The bill may give the dispute resolution committee set up through the ordinance the envisaged FSDC shape. The government has been doubly cautious while issuing the ordinance as it does not want to be seen undermining the independence of the financial sector regulators. The final bill will have safeguards to ensure that the independence of the regulators is not undermined by the new law.