The government has put to rest the two-month-long turf war between insurance regulator Irda and capital market watchdog Sebi, clarifying that life insurance business includes any unit-linked insurance policy, scripts or similar instruments.
?Life insurance business shall include any Ulip or any such instruments. This would set at rest all the issues regarding Ulips between two financial regulators,? the government said in a statement after promulgating the Securities & Insurance Laws(Amendment & Validation) Ordinance 2010 to make necessary changes in the law.
With the President?s Ordinance on Friday amending the RBI Act 1934, Insurance Act 1938, Sebi Act 1992 and Securities Contract Regulations Act 1956 to keep the Ulips and similar products under definition of the life insurance business, Irda will be sole regulator for these products.
The government also constituted a high-level committee under chairmanship of the finance minister to sort out all issues of jurisdiction regarding hybrid products. A statement released by the government on Saturday said the finance secretary, secretary of the department of financial services and the chiefs of four financial regulators (Reserve Bank of India, Insurance Regulatory and Development Authority, Securities Exchange Board of India and Pension Fund Regulatory Development Authority) would be members of the committee.
Interestingly, in light of the new Ordinance, the government could also revisit the issue of taxation of Ulips under the proposed direct tax code (DTC), according to finance ministry officials. While the revised discussion paper on DTC released on Monday had not included Ulips under products availing tax exemption, pure life insurance products were eligible for this. Now, with the Ordinance making it clear that Ulips were an insurance product, the taxation issue had to be revisited, said the officials.
On April 10, Sebi triggered a turf war with Irda when it issued an order restraining 14 insurance entities from selling Ulips, saying these companies needed to take its approval before launching any product with an investment option. Several characteristics of Ulips ?product was unit-linked and money was raised from the public through sale of units, premium used to allocate units in funds chosen by investors, the product?s characteristics of fund management, charges, switch and partial withdrawal options ? were that of an investment product, making registration with Sebi mandatory, the market regulator had argued.