SEBI Vs IRDA

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As the battle between the SEBI and IRDA brews in India, a similar battle is about to begin in the US

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As the battle between the SEBI and IRDA brews in India, a similar battle is about to begin in the US

Transcript of SEBI Vs IRDA

Page 1: SEBI Vs IRDA

As the battle between the SEBI and IRDA

brews in India, a similar

battle is about to begin in the US

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What would a mother do when her two children are fighting on a single piece of chocolate? Let them solve the issue internally?

Or

whether the mother will step in with the mediating decision to resolve the conflict?

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However, that’s not the case to be over here. In the conflict between the country’s top tworegulators – SEBI (Capital market regulator) and IRDA (Insurance Regulator) – on thesimmering issue of holding governing rightsover Unit-linked insurance products (ULIP)

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SEBI is the regulator for the securities market in India. It was formed officially by the Government of India in 1992 with SEBI Act 1992 being passed by the Indian Parliament. Chaired by C B Behave, SEBI is headquartered in the popular business district of Bandra-Kurla complex in Mumbai, and has Northern, Eastern, Southern and Western regional offices in New Delhi, Kolkata, Chennai and Ahmedabad.

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Functions and Responsibilities

SEBI has to be responsive to the needs of three groups, which constitute the market :

The issuers of securities The investors The market intermediaries

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SEBI has three functions rolled into on body :

quasi-legislative quasi-judicial quasi-executive

It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity. Though this makes it very powerful. SEBI has enjoyed success as a regulator by pushing systemic

reforms aggressively and successively (e.g. the quick movement towards making the markets electronic and paperless rolling settlement on T+2 basis).

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Insurance Regulatory and Development Authority, the administrative agency of Government of India for insurance sector supervision and development

The Insurance Regulatory and Development Authority (IRDA) is a national agency of the Government of India, based in Hyderabad.

It was formed by an act of Indian Parliament known as IRDA Act 1999,

Mission of IRDA as stated in the act is "to protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto.“

IRDA formed a high powered Insurance Law Reforms Committee known as KPN Committee with important insurance advisors like Mr. N Govardhan and Dr K C Mishra as its members.

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Duties, Powers and Functions

Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDASubject to the provisions of this Act and any other law for

the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business.

Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions .

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ULIP is saving-cum-investment product that offers the option of life cover along with market liked returns.

These products are increasingly gaining popularity among the investors on account of its multi-purpose catering of life cover and equity market linked returns both.

Additionally, they also provide Tax savings, so they could Very called All-in-One Policies.

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WHAT IRDA SAYS

• ULIP have a mandatory insurance cover that is a vital and an inseparable part of each such product.

• Unlike mutual funds, ULIP are linked with the policyholder’s life.• Unit Linked Life Insurance business is defined in IRDA regulation,2000

WHAT SEBI SAYS

• ULIPS are different from traditional insurance products, and they are a combination of insurance and investment.

• The attributes of the investment component of Ulips are link to the characteristics of mutual funds.

• Investment component of Ulips carries equity market risks. So, Ulips need to be registered with and regulated by SEBI.

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Life Insurers’ Stand SEBI’s Contentions

ULIP is a life insurance product not covered under the definition of securities under the securities contract Act 1956

Units of mutual funds are “securities” as defined under section 2(h) of the securities contract act, 1956. merely because they are namely as units of ULIPs, they cannot be ousted from the ambit of definition of “securities”

The predominant feature of a ULIP is insurance cover, which is dependent on human life. The mere existence of an additional investment feature cannot convert a ULIP into a mutual fund.

If in a combination product there is an investment component, in any proportion, exposing investors to the risks of equity market, it can be issued only after obtaining registration from Sebi.

Section 11AA(3) of the Sebi Act excludes contracts of insurance under the insurance Act 1938,from the purview of collective investment schemes.

ULIPs launched by the said companies are not purely in the category of “contract of insurance” but have components of investment products.

The product was launched after following appropriate procedures and obtaining a unique identification number from IRDA, which is the regulator in case of life insurance products. Thus, there is no need to obtain a certificate of registration from SEBI.

Approval from one regulatory authority does not exempt the company from complying with other applicable laws and being administered by other relevant regulators.

Unlike a mutual fund, a ULIP is not established in the form of a trust. The fund is held by the insurance company itself as required under the insurance act.

Section 12(1B) of the Sebi Act says “no person” can sponsor or cause to be sponsored a collective investment scheme including a mutual fund unless he has been registered with Sebi under the Sebi Act.

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As the battle between the SEBI and IRDA brews in India, a similar battle is about tobegin in the US., Senator Christopher Dodd of Connecticut introduced a bill in the Senate that would empower the Commodities Futures Trading Commission(CFTC) to regulate Over-the-counter derivatives market.

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CFTC

The Commodity Futures Trading Commission (CFTC) is an independent agency of the United States government.

More comprehensive regulatory framework for the trading of futures contracts.

Mission of the CFTC is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets.

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Presented By :Abhishek MittalGourav Girdher