Market regulator Securities and Exchange Board of India (SEBI) has floated a consultation paper on forming self-regulatory organization (SRO) for mutual fund distributors and Investment Advisers (IAs).
There are 1.24 lakh mutual fund distributors as on February 28, 2019 and 1,136 IAs registered with SEBI as on March 19, 2019. “Their direct supervision by SEBI would be challenging. Hence, some form of a first level regulator is required to have an oversight on them. In view of the above, it is proposed to have SROs to regulate the distributors of mutual funds and Investment Advisers (IAs),” states SEBI.
On the need for having an SRO for mutual fund distributors, SEBI stated, “It is observed that there are diverse practices in the industry regarding the relationships between the AMC and the distributor. Further, a distributor is empaneled with multiple AMCs. Thus, there is a need to bring a certain level of consistency in the practices of the distributors. Hence, there is a need to have an SRO for the distributors of mutual fund products to ensure consistency in the practices, enforcement of code of conduct and to take disciplinary action, if required, particularly in respect of alleged malpractices like mis-selling of products, churning of portfolio etc. and to deal with investor grievances, in order to safeguard the interests of the investors.”
While SEBI directly regulates IAs as they are registered with it, SEBI has felt the need of having an SRO for IAs due to the growing number of complaints against IAs regarding charging exorbitant fees, assurance of returns, misconduct, etc.
The SRO of intermediaries in the securities market would be entrusted with the role of being the first level regulator for such intermediaries. The proposed SRO would perform multiple roles like developmental, regulatory, grievance redressal and disciplinary. The applicant has to be incorporated under under Section 8 of Companies Act, 2013 with a minimum net worth of Rs 1 crore. The SRO will provide for a dispute resolution mechanism including arbitration to settle disputes between investors and its members and disputes between its members.
The comments can be sent by email to sro@sebi.gov.in.