Reliance and HDFC have sent email communication to distributors informing them about the impending due diligence
Mumbai: The two largest AMCs, Reliance and HDFC have sounded off their big distributors about the implementation of due diligence. All other AMCs are also going to inform their distributors by next week.
According to sources, recently SEBI had sent a sharply worded letter to AMCs on the due diligence issue.
Earlier, AMCs were planning to outsource the task to two or three audit agencies. However SEBI reportedly wants all AMCs to do their own due diligence. Industry sources say that AMFI is likely to ask SEBI to reconsider its decision. Some are of the view that few AMCs should be allowed to carry out the due diligence and send the same report to all AMCs.
Conducting audit on distributors spread across India will be a time consuming, laborious and costly affair for AMCs.
A major fallout of all 44 AMCs conducting their independent due diligence on each distributor is that distributors will start de-empanelling themselves or stop selling schemes of small AMCs to avoid the regulatory hassle. “I am sending letters to four small AMCs to de-register my ARN code with them. Some other large distributors are also doing this. We can’t entertain all AMCs,” says a top distributor from Mumbai.
Some distributors are likely to stop dealing in fund houses where they have tiny assets under advisory. It will be an operational nightmare for distributors to coordinate with all 44 AMCs.
“A majority of AMCs had agreed for appointing external auditors but two AMCs wanted to do their own due diligence. Small AMCs are going to suffer because of this move,” said a source on the condition of anonymity.
