Insurance companies' darling product, Unit-Linked Insurance Plan
(ULIP), has now been caught in a regulatory logjam. Capital
market regulator, Securities and Exchange Board of India (Sebi) and
insurance watchdog Insurance Regulatory and Development Authority (IRDA)
have locked horns over the regulatory rights with regard to ULIPs. Regulation
of ULIPs has been the bone of contention between the two regulators. In fact,
the Sebi order of April 10 banned 14 insurance companies, including those
belonging to the Tatas, SBI, ICICI Bank, HDFC Bank and Reliance Anil
Ambani Group, from accumulating funds through ULIPs without its prior
approval. However, subsequently, Sebi softened its stand, and on April 14,
it came out with a second order that exempted the existing ULIP schemes
of these 14 players from the ban. Sebi's stance has been that under Section
11 of the Sebi Act, any firm that runs a collective investment scheme must
acquire a prior approval from Sebi. Its logic has been that since ULIPs are
a combination of investment and insurance, companies offering ULIPs
must seek Sebi's prior approval before investing their corpuses into the equity
markets, which is governed by Sebi. The ban was, however, lifted after the
government brokered a temporary truce between the two warring regulators.
Now, the turf war over the jurisdiction of ULIPs will be resolved by courts.
Though Sebi and IRDA have been fighting with each other over the issue
of regulating ULIPs, caught between this row are the gullible
policyholders. Whatever be the final verdict given
by the courts, it is of paramount importance to ensure that the
investors' money remains safe. Furthermore, it is expected that such phases of
intense regulatory disagreement will only signal the onset of long-awaited
financial reforms.
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