SEBI Chairman UK Sinha has said that the market regulator aims to form a strong Self-Regulatory Organization (SRO) for regulating mutual fund distributors. He was speaking at the 11th CII MF summit recently held in Mumbai.
Sinha said, “Times are good since things are moving in the right direction. However, the industry must formulate a medium to long term plan to achieve sustainable growth. The first thing that comes to my mind is strengthening distribution network. You are aware that SEBI tried to introduce an SRO. Unfortunately, because of certain litigation, we have not been able to make it. SEBI’s thinking is very clear that we would like to have a strong SRO once the litigation issues are sorted out.”
Early in 2013, SEBI had taken the first step to facilitate the setting up of an SRO for distributors of mutual fund and portfolio management products. The regulator had received applications from three entities – Financial Planning Standards Board India (FPSB), Financial Intermediaries Association of India (FIAI) and AMFI promoted Institution for Mutual Fund Intermediaries (IMFI).
In February 2014, IMFI had received in-principle approval to set up SRO. However, FPSB promoted FPSF had filed the appeal with SAT on March 27. In its first hearing on April 23, SAT had directed SEBI not to grant a final approval to AMFI IMFI to set up SRO.
In its appeal, FPSF has argued that the decision making process adopted by SEBI in granting in-principle approval to IMFI was not fair and just. It stated that neither did SEBI conduct any formal interview to determine the most suitable applicant for SRO nor did it offer any substantive reasoning regarding its decision to grant in-principle approval to act as SRO to IMFI. However, SEBI in its reply said that it gave equal and fair opportunity to all the three applicants before taking a final decision. It requested SAT to dismiss the appeal.
The next hearing of the case is scheduled on July 13, 2015.
SEBI’s decision to grant IMFI in principal approval as SRO evoked mixed response. While some feel that AMFI promoted SRO will have a better understanding of distribution fraternity others say that a manufacturer led association may not be effective in regulating distributors.
