That the markets regulator, SEBI, and the insurance regulator, IRDA, are in a turf battle about regulating some products from insurance companies has been known for some time. The narrative, as understood from media reports, is that SEBI made an attempt to regulate some insurance products that it said had negligible or nil insurance component. Since these are primarily investment products, SEBI has challenged IRDA’s authority. However IRDA mounted a spirited resistance to SEBI’s assault on its territory.
Basically, you could have been forgiven for thinking that this is a turf-battle between different bureaucracies, similar to the jostling between the local development council and the municipal corporation.
However, there’s a more important issue at stake here, one which has nothing to do with which organisation regulates whom. The independence of any regulator is not an end by itself. It is a means to ensure that the larger body of officialdom cannot interfere with and influence a regulator’s working. The eventual public good that regulators’ independence helps to deliver is the quality of the regulation and the strictness of that regulation’s implementation.
In the case of SEBI trying to apparently annex regions of the IRDA’s empire, the only thing that actually matters is the kind of regulations under which Indian investment products are being offered to the public. It so happens that over the last two decades, the regulatory framework governing Indian mutual funds has evolved into one of the most consumer-friendly in the world. In fund management costs, transparency of investment operations, accounting norms, as well as distribution costs, India is way better than markets like the US and Europe. On top of the tough framework on investment products that has been evolved by SEBI, the PFRDA has further upped the ante.
In the New Pension System, not only are the costs even lower but there is a great deal of fresh thinking on how costs can be pushed even lower in long-term products.
For the Indian investor, it would be of great value to have the most pro-consumer set of regulations applied to all investment products.
The issue is not whether it’s IRDA or SEBI which is enforcing the rules, but which rules are being applied. It is beyond argument now that both ULIPs and mutual funds are sold as investment products, both competing for the same rupee of the investors’ and often run by outfits owned by the same parent companies. That they are governed by radically different regulatory structure is a huge disservice to the investors.