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AMFI has issued guidelines for execution only platforms (EOPs) in which it has directed such companies not to offer incidental advice. With this, EOPs cannot offer robo advisory services to their clients.
AMFI said, “EOP or any of its employees shall not render, directly or indirectly, any investment advice about any mutual fund scheme/s either on its own or in any other publicly accessible media, whether real-time or otherwise, nor make any recommendation to any investor for purchase or redemption of Units of any mutual fund scheme.”
Earlier, SEBI introduced two set of norms of EOPs – category 1 EOPs can become agent of AMCs and charge transaction fee from them by obtaining license from AMFI and category 2 EOPs can become representative of investors and charge them directly by taking stock broking license.
SEBI has defined EOP as any digital or online platform, which facilitates transactions such as subscription, redemption and switch transactions in direct plans of the schemes of mutual funds.
All players who are into distribution of direct plan will have to obtain EOP license by December 01, 2023. Also, industry platforms like MF Central, MF Utilities, BSE Star MF and NSE NMF II will also have to obtain EOP license.
Let us look at the other key details of the EOP 1:
- EOP 1 has to be a body corporate
- It has to appoint a compliance officer and at least two qualified with experience of at least 3 years in securities market
- The entity should have net worth of at least Rs.1 crore
- EOPs 1 will have to enter into an agreement with AMCs which should define scope of activities
- EOPs 1 will have to integrate their system directly with AMCs or their RTAs
- They can sell only direct plan. Also, if EOPs is into regular plan business, they need to float a different platform or maintain arm’s length distance between both the activities
- EOPs 1 will have to facilitate non-financial transaction
- EOPs 1 can offer their services to KYC compliant clients. For first time investors, they will have to redirect new clients to AMCs website or RTAs for KYC
- EOPs 1 will have to maintain cyber security
- EOPs 1 will have to put in place mechanism to address grievances
- EOPs 1 cannot display advertisement of fund houses
- EOPs 1 cannot give incidental advice, they can purely act as execution platform
- EOPs 1 will have to ensure that they do not make false or misleading statement
