SEBI’s decision to give AMFI promoted Institution of Mutual Funds Intermediaries (IMFI) the go ahead to form self-regulatory organization (SRO) for distributors has evoked mixed responses from industry stakeholders. Some believe that AMFI is best placed to regulate distributors while others feel that a distribution association should have been entrusted the responsibility to form SRO.
AMFI has received in principal approval from SEBI on Friday. Organization of Financial Distributors (OFD) floated by Financial Intermediaries Association of India (FIAI) and Financial Planning Standards Board of India were also in the race for SRO.
Cafemutual spoke to some leading industry experts to get their views on whether IMFI is fit to regulate distributors.
AK Narayan, President, IFA Galaxy struck an optimistic note and said that it’s a good move for both -industry as well as distributors. He said that the function of IMFI would be completely segregated from AMFI since it will be a different entity which will not engage in activities other than the SRO.
“AMFI has been closely working with the distributors for more than a decade; hence they deserve to be an SRO for distributors. In fact, I feel that the regulator is very late in giving in-principle approval to it. Also, AMFI has taken many steps for the development of distribution industry like MF Utility platform,” says a senior official from a foreign AMC.
Debasish Mallick, Managing Director & Chief Executive Officer, IDBI Mutual Fund said that SRO would be a separate body and hence there would be no conflict of interest. Also, AMFI is already engaged in giving direction and guidelines to distributors; therefore, they can better understand the need of distribution community, he added.
Another senior fund official is of the view that AMFI is the best choice for the SRO. He said, “I believe that IMFI will act in utmost good faith and avoid conflict of interest in the conduct of its function.”
Hemant Rustagi, Chief Executive Officer, Wiseinvest Advisors seconds the view and said that IMFI as an SRO will improve the standards of best practices, awareness and education among distributors.
However, some experts think otherwise. Dhirendra Kumar, Chief Executive Officer, Value Research strongly believes that any manufacturer promoted body may not work out well in the SRO role. He, however, said that if AMFI plays a limited role in the SRO like in funding etc. then it can do a better job. “In due course, we will get to know whether it stands on its feet or not.”
CR Chandrasekar Chief Executive Officer, Fundsindia doubts if IMFI is fit to act as an SRO for distributors. He says, “It came as a bit surprise for me. How could a manufacturing arm regulate for the interest of its distributors. Also, in a country where a lot of distributors or IFA associations are active, only one had applied for SRO.”
Typically, a SRO is a non-governmental organization which regulates its members and protects investor’s interests. The regulator will leave micro-regulation to the SRO.
According to SEBI rules, majority of directors in the Board of Directors of SRO should be independent. The SRO must be a company registered under section 25 of the Companies Act, 1956, and must have a minimum net worth of Rs 1 crore.
SRO is responsible for protection of investors, spreading awareness among people, education of distributors and conducting screening test for the distributors. SRO can conduct audit of its distributors on regular basis. SRO can collect admission and membership fees from its members to carry out various operations.
