SEBI has given its justification as to why it granted in-principle approval to IMFI as SRO.
In
its reply to Securities Appellate Tribunal (SAT) against the appeal filed by
FPSB on SEBI’s decision to grant in-principle approval to Institution for
Mutual Fund Intermediaries (IMFI), the regulator has said that it gave equal
and fair opportunity to all three applicants before taking a final decision.
Cafemutual has a copy of SEBI’s response to SAT. Here are the arguments offered by SEBI:
- The process of selection started after the receipt of all required documents from all the applicants.
- The cut-off date of July 31st, 2013 was
merely a cut- off for receipt of applications from interested
group/associations of intermediaries and that the compliances confirmation
regarding other requirements were taken by SEBI from all the applicants
after July 31st, 2013.
- There is no right vested on an applicant
seeking selection as SRO to say that the selection of the best suitable
applicant from all the applicants would be a cause for its grievance.
- FPSB is merely trying to raise technical
objections to grant of in -principle approval to IMFI which is otherwise
satisfying the requirements of being licensed under section 25 of the
companies Act, 1956 and basic requirement under Regulation 3.
- FPSB failed to bring out the conflict if
lMFl is recognized as SRO for MF distributors, more so because AMFI
represents the AMCs across lndia. FPSB had appealed that giving SRO status
to IMFI would result in conflict of interest since AMFI is promoted by
AMCs.
- SEBI has granted in-principle approval
to IMFI based on the condition that out of the four elected directors on
the board of the proposed SRO, there shall be equal number of representation
from both the distributor community and the AMCs and IMFI shall appoint various
committees including disciplinary committee, screening committee,
arbitration committee, and remuneration committee. The chairmen of the disciplinary
and arbitration committees shall necessarily be independent members. Thus,
the provisions of SRO regulations ensure that management of SRO will be independent.
- FPSB has stated that according to the
information received from RTI that lMFl
obtained license on 23rd July 2013 and got its certificate of
incorporation on 2 August 2013, which is after the closing date for
applications. SEBI noted that IMFI was holding a license under section 25
as on July 23, 2013 and got a certificate of incorporation on August 02,
2013. AMFI in its reply to SAT said the certificate of registration was
received on August 2, 2013 from Registrar of Companies only on account of
technical issues.
- FPSB’s appeal is unsustainable and merely technical having no substance. The question of whether a company can act before its incorporation is irrelevant and immaterial consideration of the issues under challenge.
The recommendations of committee of executive directors of SEBI for grant of in principle approval to IMFI was based on the following criteria:
- Existence of the promoter entity of lMFl
i.e. AMFI since August, 1995.
- AMFI is registering the distributors who
want to distribute mutual fund products, since more than a decade and
allots the AMFI Registration No. (ARN) to the distributors
- AMFI has issued a code of conduct for intermediaries (distributors) of mutual funds, and it modifies and updates the same on regular intervals. SEBI vide various circulars from time to time advised the intermediaries of mutual funds to follow the code of conduct issued by AMFI strictly.
SEBI
argued that since only one group was to given SRO status the provision to grant
hearing before rejection may be applicable to sectors where there is scope for
multiple SROs.
It said that SEBI’s decision to grant in-principle approval to IMFI as SRO was transparent, fair, equitable and based on uniform treatment to all applicants. It requested SAT to dismiss the appeal. The next hearing in this matter is scheduled on August 08.
