Government of India Volume I: Analysis and Recommendations

ANNEXES
28. Being a social security scheme administered by the government, ESIC should not
be subjected to the entire gamut of insurance laws and regulations. However, the
law should allow the insurance regulator to identify certain specific principles, such
as those relating to corporate governance, investment management and consumer
protection, that would have to be complied with by ESIC.
29. In case of government-sponsored schemes that are administered through insurance
companies, the general provisions of insurance laws would be applicable.
However, the law should allow the regulator to vary the applicability of certain provisions
of law, particularly in respect of the pre-sale obligations of insurers.
30. In case of schemes where the insurance coverage is contemplated to be provided
directly by the government and the scheme is not funded through a complete or
substantial fiscal transfer, the law will identify certain specific provisions, such as
those relating to corporate governance, investment management and consumer
protection, that would have to be complied with by the government body implementing
the scheme. In order for these provisions to be effectively implemented,
the law should mandate that any insurance business carried out by the government,
which is eligible for limited regulation under insurance law, should be carried
out through a separate corporate entity.
31. Life insurance schemes operated by the Department of Post (DOP) should be corporatised
and brought within the purview of the insurance regulator to ensure effective
prudential management, protect the interests of policyholders and create a
level playing field.
19.6.4. Recommendations on retirement financing
Scope of retirement financing regulation
1. There should be common regulation and supervision for all retirement financing
schemes, including various types of pension and provident fund schemes, but not
including the unfunded, tax-financed schemes (such as Old Age Pension Schemes),
or those that are largely tax-financed. This would mean that the mandates that are
presently divided between PFRDA and EPFO must be brought under one regulatory
agency.
2. EPFO should only manage and not regulate retirement financing schemes. EPFO itself
should be regulated in the same manner like any other retirement financing entity,
and the entire range of regulations should apply to it. Similar approach should
be taken towards PPF.
3. Smaller exempt and excluded funds should integrate with Employees’ Provident
Fund (EPF) or NPS. The tax treatment should continue if the fund chooses to integrate
with either of the two. The law should not make reference to the possibility
of exemption or exclusion, and it should mandate all existing funds that fall under
these categories to opt for either NPS or EPFO.
4. The primary objective of retirement financing regulation should be to correct market
failures in the retirement financing sector. Development of the sector or inclusion
should not be mandates given to the regulator, though the regulator should
have the flexibility to customise the regulation according to the profile of the consumers
and the kind of the product being offered, based on cost-benefit analysis
of the regulation.
Prudential regulation
5. Prudential regulation and supervision of retirement financing should be largely
risk-based. Regulator should ensure that investigatory and enforcement requirements
are proportional to the risks being mitigated.
170 FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION