Is the debate on a single regulator really worthwhile? We do have various players in different sectors who are regulated by four regulators in the financial sector. There are overlaps in product design, distribution channels and arbitrages in the areas of capital and channel reward systems.
All the players mobilise household savings from a common pool. Banking companies have an elaborate distribution system of their own through their branch-network and their employees. Asset management companies (AMCs) have an open architecture distribution arrangement . The brokers who sell these products earn their fees from investors and are expected to be loyal to them.
Insurance firms, on the other hand, use a substantial direct agency channel that engages more than three million people. AMCs and insurers also depend on the banking system for their distribution through their bank assurance channel.
Earlier on, Unit Linked Insurance Plans (ULIPs) were designed by an AMC. The element of protection cover on a back to back was written by the life insurer.
With the emergence of private sector insurance companies , we now have insurers who have designed ULIPs and are mobilising savings through these products.
Despite the issues of the regulatory arbitrages, the financial services sector benefits through the optimum utilisation of distribution channels through innovative products which may overlap and fall within the jurisdiction of more than one regulator.
There is nothing unusual about this. It does happen in many markets and there can be an efficient coexistence of different players as long as the larger purpose of mobilizing savings is served.
We do have, perhaps, peculiarities in the overlap due to a very flat tax incentive system. It does not distinguish or encourage savings in regards its size and the maturity period to any effective extent .
What we do need is convergence of regulation rather than debate over the issue of a single regulator. The tax incentive structure should also go hand in hand with such a converged plan.