RBI has proposed strict guidelines for banks selling third party products in its draft guidelines on wealth management/distribution services.
In order to curb mis-selling of third party products by banks, RBI has proposed sweeping changes in the way bank sell mutual funds and insurance schemes in its draft guidelines on wealth management and distribution services.
“Mis-selling raises serious consumer protection issues. Further, as observed from the recent allegations, wealth management activities as well as marketing third party products can expose banks to serious reputational risks. Bank employees were directly receiving incentives from third parties such as insurance, mutual fund and other entities for selling their products,” states the draft released on June 28, 2013.
Some the key changes proposed by RBI:
- Employees of banks selling third party products should have a professional qualification. They should be continuously trained to understand the complexity of products.
- The selling should be need based and mapped to the customer profile.
- Products should be marketed only in branches having trained personnel.
- Code of conduct for sales personnel in banks
- The bank should set up internal grievance redressal machinery for resolving issues related to mis-selling, agency services, service defaults etc.
- Sales personnel of banks should not get any incentive (cash or non-cash) for distributing third party products directly from mutual funds or insurance firms.
- Transactions above Rs 50000 for third party products should only be accepted through debit to customers account with the bank and not in cash/cheque of other banks. There should be no evasion of these regulations by accepting several amounts for lower values from the same client to avoid the stated threshold.
- Banks should disclose to the customers the details of commissions from mutual fund/insurance/other financial companies for marketing their products.
In addition to this, RBI has also proposed that banks should offer their wealth management services (PMS, referrals and investment advisory services) through a separately identifiable division or department (SIDD). The subsidiary would be required to register with SEBI. Banks would be required to have a clear demarcation between other departments of the bank and the SIDD. The subsidiary will have to set up robust internal grievance redressal machinery for resolving issues related to services offered. A board approved customer compensation policy in case of complaints related to services offered will also have to be formulated.
The last date for sending comments on the proposed guidelines is July 31, 2013. Banks will be given a year’s time to reorganise their structure once RBI issues the final guidelines.
