Wanted: A Financial Regulator for India

There is a debate on who should keep an eye on the money that you invest in Unit Linked Insurance Policies (ULIPs)? The mutual fund industry feels it should be the Securities and Exchange Board of India (SEBI) as ULIPs are basically investment products. But ULIPs are sold by insurance firms under the garb of protecting the consumer. So the insurance sector feels that in keeping with international norms, the Insurance Regulatory and Development Authority (IRDA) must regulate it.

So, who should regulate companies that fall between two sectors or fall under more than one sector?

The Problem
This is not the only sector which faces a regulatory dilemma. When gold exchange traded funds were being launched in the country it was not clear if such products should fall directly under the Reserve Bank of India (RBI) regulation or the forward market commission which is the regulatory body for commodities. Similarly, when currency trading started in the country, many felt that it should come under RBI but is now being regulated by SEBI.

The ULIP issue itself has a twist. The top five mutual funds in India account for 56 percent of the total assets of the industry. These funds belong to big financial conglomerates that have a presence in banking, insurance, personal loans etc. Apart from UTI, all the other top players have a dominating presence in selling insurance products. So whenever pure play mutual fund players cry hoarse about mis-selling of insurance policies they hardly get a hearing.

"If the mutual fund parent has an insurance arm he will concentrate more on the insurance side as that is where the money is and that is what the agents want to sell. Thus the parent itself will cannibalise the mutual fund industry and try to play SEBI and IRDA if it benefits him," says a fund manager who did not wish to be named.

Meanwhile the Pension Fund Regulatory and Development Authority (PFRDA) has recommended that insurance agents' commission be scraped within two years. Agents feel that the PFRDA has nothing to do with the insurance segment and only IRDA has the right to take decisions about the insurance sector.