SEBI has revised existing risk management framework in which it has directed fund houses to introduce an approved methodology to determine commission structure of their distributors. The methodology could have a matrix model based on which fund houses can approve deviations, said SEBI.
Another key development is clawback in commission. SEBI has made claw back provisions voluntary for AMCs.
Here are other key elements of the new framework related to distribution business:
Mandatory
- AMCs have to ensure that they have the mechanism to evaluate instances of mis-selling, prepare inspection report, analyse portfolio of investors and so on. One way to see if mis-selling has happened is by looking at AUM of a scheme and check if growth is due to performance or higher commission paid to distributors, said SEBI
- AMCs will be held responsible for mis-selling of their distributors
- AMCs will have to do detailed analysis of mis-selling
- MFDs should not mislead investors by representing any select time period to represent returns
- Put in place a mechanism to audit commission paid to distributors
- Ensure the commission paid to distributors is based on approved methodology and in adherence with AMFI norms
- AMCs will have to conduct regular performance reviews of distributors
- Conduct enhanced due diligence of distributors
Voluntary
- Monitor marketing, sales and promotion expenses of AMCs
- Reporting on cost-benefit of outcome of marketing and promotional expenses
- Undertake mystery shopping
