In its board meeting held today, the SEBI board has approved the Registered Investment Advisor (RIA) consultation paper to seek public comments on segregating investment advice and distribution of products.
SEBI’s June 22 paper had proposed that banks, NBFCs and body corporates offering investment advisory services through separately identifiable departments or divisions (SIDDs) will have to segregate the same within a period of six months through a separate subsidiary. It proposed that an entity offering investment advisory services would not be permitted to offer execution services.
SEBI said that it has received feedback from various stakeholders to prevent the conflict of interest between advising for investing in financial products and selling of financial products.
Also, the consultation paper will seek feedback on allowing mutual fund distributors to explain the features of products to client while distributing funds by ensuring the principle of ‘appropriateness.’
The consultation paper will be placed on SEBI website for seeking public comments. SEBI Whole Time Member (WTM) G Mahalingam had in fact said that SEBI will take some more time to finalize the amendments to RIA guidelines.
Norms for shareholding and governance in mutual funds
SEBI has said that a sponsor of a mutual fund will not be allowed to have 10% or more stake in any other AMC. Also, the sponsor cannot have representation on the board of the AMC of any other mutual funds. Any AMC which is not conforming to this rule will be given a reasonable time to comply with the new rules. Currently, State Bank of India, Bank of Baroda, Punjab National Bank and Life Insurance Corporation each hold 18.29% stake in UTI Mutual Fund and also operate their own mutual fund. “UTI has been grappling with this issue for a long time. Its sponsors SBI and LIC had reportedly proposed a merger with UTI which did not find acceptance. The four sponsors have to collectively sell 33% stake in the fund house to comply with SEBI. We’ll have to wait and watch if IPO is a solution,” said Manoj Nagpal of Outlook Asia Capital.
