Lok Sabha clears joint mechanism

The Lok Sabha on Monday approved the Securities and Insurance Laws (Amendment) and Validation Bill, which seeks to set up a joint committee to resolve regulatory disputes over hybrid instruments and empowers the insurance regulator to deal with unit-linked insurance plans (Ulips). The Bill was passed after Finance Minister Pranab Mukherjee assured Parliament that the autonomy of regulatory agencies would be preserved. 

During the debate on the Bill, which will replace an Ordinance, the finance minister ruled out the possibility of the proposed joint committee impinging on regulatory freedom. He also said the committee, headed by him, will only handle disputes referred to it by one of the regulators. “In no way, we are interfering with the monetary authority. The RBI is supreme.” 

The disputes will be dealt with by the joint committee that will have the RBI governor as vice-chairperson, the insurance, pensions and markets regulators as members, along with the economic affairs secretary.

Besides, the Bill provides that the Insurance Regulatory and Development Authority (Irda) will regulate Ulips, a hybrid investment-cum-risk plan.

The Ordinance had resulted in RBI Governor D Subbarao voicing concerns over regulator autonomy. Following RBI’s concerns the government built two safeguards. One, it decided to elevate the RBI governor from being a mere members of the committee to being the vice-chariman. In addition, the Bill provided that the joint mechanism will not deal with other areas and only the regulators can refer the matter of jurisdiction to the committee. 

“It was true there were lots of apprehensions whether we are going to dilute the regulators’ independence or autonomy. It will only be in the case of jurisdiction disputes between the regulators that the joint mechanism will be used,” said Mukherjee.

Explaining the rationale for making the RBI governor the vice-chairman of the proposed committee, he said if the dispute arises between the central bank and other regulators, the arbitrary function cannot be given to the interested party. “That is why, it has been decided that the finance minister will be the chairman,” he said, adding the RBI governor’s status has in fact been elevated as the earlier suggestion was to make the governor only a member of the committee.

The minister further said the government has to interfere if there is conflict among the regulators, and as a result, the interests of the economy suffer. “No regulator comes to Parliament and explains. It is the finance minister who is accountable to Parliament. Therefore, there must be a place where the buck stops and it is the finance minister where the buck stops,” Mukherjee said.     

The government issued the Ordinance on June 18 after the Securities and Exchange Board of India and Irda locked horns over regulation of Ulips and could not seek a joint legal mandate to sort out the issue, as suggested by the finance ministry.

Mukherjee cited the recommendations of the Raghuram Rajan committee to say that it was premature to have a single regulator.