The Securities and Exchange Board of India has proposed a self-regulatory body for distributors and advisors of mutual funds products. The regulator said the distributors of mutual fund products and investment advisers are becoming important players in the market and growing in number. There are about 1.24 lakh distributors of mutual fund products as on February 28, 2019 and 1,136 investment advisers registered with Sebi as on March 19, 2019. “Therefore, their direct supervision by Sebi would be challenging. Hence, some form of a first-level regulator is required to have an oversight on them,”
Sebi has stated in a discussion paper on Monday seeking public comments by April 21, 2019. “Further, the same (SRO) may be extended to suchother intermediariesor other market participants as may be notified by Sebi from time to time.” The regulator has sought feedback on whether there should be a single or different SROs for different classes of regulatees and on enhancing the net worth of SROs from the existing ?1 crore. At present, asset management companies are responsible for the conduct of the distributors empaneled by it. But, there are diverse practices in the industry regarding the relationships between the asset managementcompany and the distributor. Besides, a distributor is empaneled with multiple asset management companies.
The regulator said there is a need tobring in a certain levelof consistency in the practices,in theenforcement of the code of conduct and to take disciplinary action, if required, for alleged malpractices like mis-selling of products,churning of portfolio and to deal with investor grievances. On investment advisers, Sebi said it has received a large number of complaints alleging exorbitant fees, assurance of returns and misconduct. SROis an organisation representing a particular segment of entities,which, as a first-level regulator, regulates the members of that segment. The regulator has also proposed changes to the selection process of an SRO.
“As per the proposed process, instead of inviting applications, Sebi would recognise an entity as an SRO on a nomination basis, after conducting due diligence,” it said. Sebiwill alsoconstitute a nomination committee comprising externalexperts,whichwouldbeheaded by a retired judge of a high court or the supreme court to consider and give recommendations regarding the suitability of an organisation or entity to be recognised as an SRO.
The Economic Times, 2nd April 2019
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