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29 Jul 2011 12:00 AM
AMCs and distributors awaiting clarity on ‘big distributors’ regulation 
Pallabika Ganguly
 

AMCs and distributors are anxious to know the details on the new regulation relating to ‘big distributors’ regulation

Mumbai: A number of questions are left unanswered by the Sebi announcement relating to regulation of distributors. Yesterday, the regulator announced that AMCs will be regulating select distributors but the industry is not clear about the operational modalities.  

“We are waiting for the detailed guidelines,” said an official from a top AMC.

AMCs are wondering what due diligence means in the context of distributor regulation.

  • Is it that they have to check whether the distributors are AMFI certified?  Do they focus on processes and system or do a thorough audit? What is to be the scope of due diligence?

  • Would banks be included?

  • How does an AMC carry out the due diligence? Do they have the skills and manpower to do it and who pays for the entire effort?

  • Which AMC has to regulate which distributor? Or will each AMC have to carry out due diligence on all its big distributors?

  • Will AMCs have power to penalize or recommend penalization or are they merely expected to share their observations with Sebi so that Sebi could take suitable action?

Vinod Jain, founder Jain Investment shared a different view regarding the Sebi move.  He said, “I think Sebi wants to differentiate between distributors and advisor. Therefore, it is the first step towards creating different categories.  MF industry needs strict regulation and we welcome the regulation announced by Sebi.  It will enhance the growth of the industry.”

He is in agreement with the Sebi approach to start with the big boys first. “Big distributors handle 80% of the business. Sebi wants to target majority of the industry so once they regulate the bigger ones, others will follow.  With this regulation there will be more transparency in the industry as documentation and commission have to be shared with the authority.“

Many big distributors welcome this move by Sebi but are looking forward for more clarity on the regulation.  “Regulations are bound to increase as MF distributors were never regulated. We are ready for it,” said Mukesh Dedhia, director, Ghalla Bhansali group of Companies.

The industry experts are clueless about who would have the punitive powers for regulating the big distributors.  “We are yet to get the clarity on punitive powers but we feel that AMCs will have to do the due diligence and inform Sebi who will have the punitive powers,” said an official from UTI Mutual Fund.

 
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