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SEBI to regulate distributors now

After several years of deliberations, distributor regulation may finally become a reality with the Securities and Exchange Board of India warming up to the idea. HT reports. 'Distributing' regulations

business Updated: Jun 23, 2011 02:42 IST
HT Correspondent

After several years of deliberations, distributor regulation may finally become a reality with the Securities and Exchange Board of India (SEBI) warming up to the idea. Besides bringing distributors under discipline, the regulator is also looking at ways to incentivise distributors in a manner aimed at increasing penetration of the mutual fund industry.

"SEBI is seriously looking at it (distributor regulation)," said UK Sinha at a Confederation of Indian Industry (CII) summit. "The regulations would be introduced in a non-disruptive manner and maybe to begin with, will be for limited number of large distributors."

Fund houses welcomed the move.

"This will be an enabler as it will enhance trust among people that they are authorised by a competitive authority," said Ashu Suyash, MD and country head, Fidelity Mutual Fund.

"It is a constructive way of going forward and we are happy that this is happening now," added Ranjeet S Mudholkar, CEO, FPSB India.

However, an industry insider on the condition of anonymity said, "There is nothing new in this and it has been talked for a long time. Wait and see what happens."http://www.hindustantimes.com/Images/HTEditImages/Images/23_06_11-buss-23b.jpg

On the mode of regulation and about other regulators being a part of it, experts said it may be done through formation of a neutral SRO (self-regulatory organisation) and other regulators may co-opt to join.

The move is likely to be significant as distributors may then be made accountable for the products advised. SEBI will also take into view the report on Right Selling Vs Mis-Selling: Building Institutional Processes while formulating the rules.

A SEBI panel had proposed a series of stringent norms and processes to be institutionalised within banks and other distributing channels in the report.

Earlier in 2009, the Committee on Investor Protection and Financial Literacy (CIPFL) under D Swarup had submitted a report to the finance ministry on advisory regulations and had made 40 recommendations that spoke of ensuring a common minimum standard of regulations for the financial adviser, common minimum entry barrier for all advisers and punitive action for breach of trust and financial losses among others.

Besides distributor regulation, Sinha also took note of the fact that the mutual fund industry witnessed a fall in assets under management, folio numbers and sales in smaller towns.

"There is a need" to incentivise the distributor, Sinha said. "We feel that especially for the retail investors who have not entered the market at all, unless some incentive is given to the distributor, it will be difficult to increase the penetration of the industry.

Taking lessons from developed markets such as the US where investors voluntarily opt for pension products, Sinha advised the industry to seriously look into the area. "There is a good potential here and I would request the industry to seriously look at how they can increase their penetration in the area of pension plans."

The regulator is also looking to introduce more disclosures for the industry and that may include break-up of institutional and retail component in their AUMs and track record of fund managers, Sinha said. Soon, there will be a uniform know your customer (KYC) required for all activities within SEBI , he added.