19-08-2020
Regulator prepares for issuance of permanent pension fund management licences
Insurance AlertssRegulator prepares for issuance of permanent pension fund management licences
The Pension Funds Regulatory and Development Authority (PFRDA) has issued a circular on foreign direct investment (FDI) in pension funds that may pave the way for permanent licences for pension fund managers.
In a previous round of licensing, only five-year licences were issued. So far there has been a lack of clarity on FDI in the sector, causing a delay in submission of requests for proposals (RFP) and keeping the industry stuck in the old licensing regime with fees capped at low levels, reported MoneyControl.
“A pension fund management company is not allowed to do any other business. Hence players are reluctant to invest in such a company for the prospect of just a five-year licence. A permanent licence on the other hand will generate more confidence among investors. The regulator can always revoke the licence and deregister a pension fund if rules are not followed," an official told Livemint.
In October 2019, foreign direct investment in the pension sector was raised to 49% under the automatic route. However, there was ambiguity on how the foreign ownership is to be calculated.
The latest PFRDA circular eliminates this ambiguity. It includes direct and indirect ownership within the limit for calculations but carves out an exception for banks and public financial institutions such as Life Insurance Corporation (LIC) and Unit Trust of India (UTI).
For instance, if an insurance company or asset management company (AMC) with 49% foreign ownership sets up a fully-owned pension fund subsidiary, the latter cannot have any additional foreign ownership. However, if a bank with 49% foreign ownership sets up a pension fund, this will be ignored. The pension fund subsidiary can have additional FDI up to 49% of its own.
Source: Asia Insurance Review
