SEBI asks AMCs to review if big distributors meet
the ‘fit and proper’ criteria; fund houses say it is an onerous task
Mumbai: SEBI
has asked fund houses to regulate their distributors if they fit the following
criteria:
- Multiple point presence (More than 20 locations)
- AUM raised over Rs. 100 crore across industry in the non institutional category but including high net worth individuals (HNIs)
- Commission received of over Rs. 1 crore p.a. across industry
- Commission received of over Rs. 50 lakh from a single AMC
SEBI has also asked AMCs to ensure that each customer and
transaction is categorized as ‘advisory’ and ‘transaction’ only.
In the case of ‘advisory’ role, the product and investors risk appetite
and investment objective have to match. If the selling is not advisory in
nature, the distributor will to communicate to investors that the product is
not suited for investor and obtain an acknowledgement from investors.
“A customer confirmation to the effect that the transaction is
‘execution only’ notwithstanding the advice of in-appropriateness from that
distributor be obtained prior to the execution of the transaction. While
selling Mutual Fund products of the distributors’ group/affiliate/associates,
the distributor shall make disclosure to the customer regarding the conflict of
interest arising from the distributor selling of such products,” states the
circular.
On ‘transaction only’ transactions, clients will not have to pay
any advisory fee other than the transaction fee allowed by SEBI.
MFs will have to put in place stringent screening processes to
label them as ‘fit and proper’. Among other things, they will have to check
advisors business model, proficiency, experience, any past record of regulatory
fines or penalties. SEBI has also asked AMCs to make sure that distributors de-link
sales process from the investor interest like risk profile and scheme
suitability. AMCs will have to do an exhaustive review of the compliance and
risk management practices of distributors.
However the circular is not clear on the periodicity of this
review. Some senior fund officials who spoke to Cafemutual on conditions of
anonymity found the new requirement burdensome. Some of the issues they are
grappling with are:
- How often would they be required to certify their big distributors fit and proper?
- What mechanism would be available to check the correctness of information provided by these distributors, many of whom are spread across hundreds of locations?
- How and what can be an objective definition of ’appropriateness’?
Tell us what you think about this new responsibility imposed on
AMCs.
