Officials of the financial services department and the insurance department have apparently asked the department of capital markets that the latter should not be poking its nose into unit-linked insurance plans (ULIPs), since it is not a capital market product.
The capital markets department of the finance ministry would have normally have backed SEBI’s stance, but it appears that the mandarins in the highest echelons of government do not want the market regulator to infringe upon what they feel is the insurance regulator’s domain, as far as ULIPs are concerned.
Moneylife has previously reported how a clear-cut turf war is going on between various regulators, the bone of contention being overlapping of regulatory supervision.
Most recently, capital markets regulator Securities and Exchange Board of India (SEBI) triggered a huge debate on whether ULIPs, being collective investment schemes, ought to be regulated by SEBI and not the Insurance Regulatory and Development Authority (IRDA). It slapped show-cause notices on insurance companies, who rushed to the IRDA which not only joined the battle, but also promptly took the issue to the finance ministry. This action by SEBI has resulted in a full-blown war between the two regulators, which is slowly reaching boiling point.
However, there is a larger picture involved here. In a country where we have multiple regulators overseeing different financial industries, there is a lot of scope for overlapping of interests due to the complex, inter-connected nature of these industries. We have separate regulators for pensions, insurance, capital markets and banks. All of these are so intricately intertwined that it is very easy for regulatory purview of one authority to spill over onto another’s territory.
Capital markets are an inevitable subset of each of these industries. Significant portions of money that flow into pension, insurance or banking channels end up finding their way to the capital markets. In such circumstances, SEBI would feel the need to make its supervisory presence felt in other industries too. Should it be allowed to do so?
This multi-regulatory environment is likely to result in more such clashes between authorities in the future. If not settled immediately, it poses huge systemic risks that could bring down the country’s financial regulatory machinery like a house of cards.
The High Level Co-ordination Committee (HLCC) on Capital and Financial Markets, which has representatives from all the above regulators, was created to strengthen coordination between various financial sector regulators and plug the gaps in the current regulatory framework. However, this brainchild of the government seems all at sea at the moment. — Sanket Dhanorkar
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