PFRDA and Other Financial Regulators: Overlap and Coordination

No financial regulator works alone. The NPS depends on banks, securities markets and insurers, each with its own regulator, and many NPS intermediaries are also regulated by the RBI, SEBI or IRDAI. Section 55 of the PFRDA Act makes the Act operate in addition to these other laws. This note explains where PFRDA's jurisdiction meets that of other regulators, the problems this creates, and how they are resolved.

1. The Regulatory Map

• Reserve Bank of India: regulates banks, which act as points of presence, trustee bank and APY service providers, and the payment systems through which contributions flow. Its monetary policy and regulation of Government securities markets affect NPS investments.
• SEBI: regulates the securities markets in which pension funds invest, custodians, credit rating agencies, and the asset management companies that sponsor several pension funds. Mutual fund retirement schemes compete with the NPS.
• IRDAI: regulates life insurers, which provide annuities on exit and sponsor some pension funds, and insurance pension products that compete with the NPS.
• EPFO: administers provident fund and employee pension schemes under the Code on Social Security, 2020, a separate retirement system for the organised sector.
• Ministry of Finance: the Department of Financial Services oversees PFRDA, and the Central Government exercises its powers of direction and supersession under the Act.

2. Points of Overlap

• Dual-regulated entities: a bank acting as a point of presence answers to the RBI for its banking business and to PFRDA for its NPS activity; Section 27(1) requires registration only "to the extent regulated" under the PFRDA Act.
• Annuities: PFRDA decides how much of the corpus must be annuitised; IRDAI regulates the product and its price.
• Sponsors: a pension fund's sponsor may be a bank, insurer or asset manager regulated elsewhere, which raises questions of group risk and conflicts of interest.
• Competing products: retirement products under different regulators may be sold side by side with different rules on charges, disclosure and tax, creating scope for regulatory arbitrage.
• Advice and distribution: retirement advisers registered with PFRDA, investment advisers registered with SEBI and insurance agents under IRDAI may all advise the same customer.

3. Coordination Mechanisms

• Financial Stability and Development Council (FSDC): set up by the Government in 2010, chaired by the Finance Minister, with the heads of the financial regulators, including PFRDA, as members. It deals with financial stability, inter-regulatory coordination and financial literacy. A sub-committee chaired by the RBI Governor handles day-to-day coordination.
• Memoranda of understanding: regulators enter into MoUs on sharing information and coordinating supervision.
• Common appellate forum: orders of SEBI, IRDAI and PFRDA are all appealable to the Securities Appellate Tribunal, which promotes consistent principles.
• Central Government: policy directions under Section 43 can align PFRDA's approach with the Government's wider financial policy.

4. Proposals for Restructuring

• FSLRC (2013): the Financial Sector Legislative Reforms Commission, chaired by Justice B.N. Srikrishna, recommended a Unified Financial Agency combining the regulation of securities, insurance, pensions and commodities, with the RBI retaining banking and payments.
• Partial implementation: the Forward Markets Commission was merged into SEBI in 2015, but PFRDA and IRDAI remain separate.
• Arguments for merger: consistent rules for similar products, less arbitrage, and a single point of contact for multi-product firms.
• Arguments against: loss of specialist focus on pensions, which have a social security purpose and very long horizons, and concentration of power in one regulator.

5. Principles for Resolving Conflicts

• Cumulative application: under Section 55, PFRDA's rules apply alongside those of other regulators; compliance with one does not excuse breach of another.
• Activity-based reading: each regulator governs the activity within its statute; registration "to the extent regulated" confines PFRDA's reach to NPS activities.
• Harmonious construction: apparent conflicts are reconciled so that both laws operate, with the special law prevailing over the general where they cannot.
• Consultation: where products or entities cross boundaries, regulators consult before issuing rules, often through the FSDC.

6. Related Topics and Provisions

• Public servants, good faith and other laws (Sections 47, 48 and 55)
• Annuities and the role of IRDAI
• EPF and the Code on Social Security, 2020
• PFRDA, IRDAI and SEBI compared
• Other intermediaries