Author : VS Warrier
The Securities and Insurance Laws (Amendment and Validation) Ordinance, 2010
The conflict between the two major regulators viz. SEBI and IRDA, over the hybrid instruments like ULIPs required an immediate solution. Since the Parliament was not in session tan Ordinance was passed by the President of India on 18th June 2010.
Chapter I of the Ordinance provides immediate effect to the Ordinance. Chapter II deals with an amendment to the Reserve Bank of India Act 1934. It inserts a new Chapter IIIE which establishes a joint mechanism to put to rest difference of opinion between the regulators with regard to regulatory jurisdiction over certain instruments. These instruments are listed as derivatives, money market instruments, repos or reverse repos or securities as defined in the Reserve Bank of India Act or policy of insurance as defined under the Insurance Act, or any other securities referred to under the Securities Contracts (Regulation) Act.
The joint mechanism will also have the power to decide matters relating to difference of opinion over whether a product is a “hybrid or composite instrument, having a component of money market investment or securities market instrument or a component of insurance” . As a result of the amendment to the Reserve Bank of India Act, 1934, a joint committee was constituted under Section 45Y (1).
Chapter IV of the Ordinance amended the Securities Contracts (Regulation) act, 1956. Under the provisions of this chapter, “securities” shall not include any unit linked insurance policy or scrips or any such instrument or unit, by whatever named called, which provides a combined benefit risk on the life of the persons and investment by such persons and issued by an insurer referred to in clause (9) of section 2 of the Insurance Act, 1938.
“Collective Investment Scheme” shall not include any unit-linked insurance policy or scrips or any such instrument. Notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority, the provisions of section 2 of the Insurance Act, 1938 (4 of 1938) or section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), as amended by this Ordinance, shall have and shall be deemed to always have effect for all purposes as if the provisions of the said Acts, as amended by this Ordinance, had been in force at all material times and accordingly any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, issued or purported to have been issued at any time before the 9th day of April, 2010, shall be deemed and always deemed to have been validly issued and shall not be called in question in any court of law or other authority solely on the ground that it was issued without a certificate of registration under any law for the time being in force or without following any procedure under any law for the time being in force, by an insurer or any other person.
The Securities and Insurance Laws (Amendment and Validation) Act, 2010
This Act came into existence on 18th June 2010. It clarifies that ULIPs shall be regulated by IRDA and not SEBI. It also provides for a Joint Mechanism to resolve disputes between regulators over the right to regulate other such hybrid products. The Finance Minister is appointed as chairman of the joint commission and RBI governor as ex-officio vice-chairperson of the joint commission. While the former was provided for in the Ordinance, the latter has been included in the Act as a result of the concerns of the RBI governor being taken into account.
Act proposed that in case of any differences among the regulators, the reference shall be made to the joint commission only by the respective regulators and not by the government. The Act appoints the RBI governor as the ex-officio vice-chairperson of the Joint Committee, rather than as a member as put forward by the ordinance.