Onus on AMC trustees to enforce MF code

MUMBAI: Capital market regulator SEBI plans to frame regulations for mutual fund distributors in a manner that the onus will be on trustees of asset management companies to ensure that norms are enforced. SEBI has taken this view since the trustees are the first level regulators of the industry at the fund level.

SEBI has already held one round of meeting with mutual fund trustees on this issue. Another meeting is likely to be held shortly to discuss this issue further.

���It is high time distributors are regulated, it has been one of our major concerns for sometime,��� said a SEBI official, who was present at the meeting.

���The AMCs are regulated..but then the distributors who are violating all code of conducts are not regulated,��� he added.
At present, there are no regulations for the distribution industry. However, distributors of financial products have to pass the AMFI or the IRDA exam and get themselves registered in order to sell any financial product. As per industry estimates, there are more than 45,000 mutual fund distributors in the country.

As part of its efforts to safeguard the interest of retail investors, SEBI had ruled that new schemes launched by mutual funds should be called New Fund Offerings (NFOs) and not initial public offerings (IPOs), which seemed to suggest an offering of shares rather than a mutual fund scheme.

The regulator had also changed the fee structure and accounting norms of the industry so that retail investors were not shortchanged.

���We may have to frame a new code of conduct on compliance for distributors,��� the SEBI official said.

Financial sector regulators are aware of the fact that there has always been mis-selling of financial products such as mutual funds, insurance, equities, fixed income and deposits happening in the country. In recent times, the situation has been exacerbated, due to the boom in financial markets.

In other developed markets such as in the US, the Securities Exchange Commission (SEC) doesn���t regulate distributors but the NASD (National Association of Securities Dealers), which is a SRO (self-regulatory organisation) does. In India, the tradition of a SRO is yet to evolve. SEBI has held discussions in the past with trade bodies in the country to become a SRO, which is next on its agenda.

According to sources, SEBI will be initiating dialogues with IRDA and RBI officials on strengthening this mechanism as there is a need for co-ordination between financial sector regulators. Market players say 30% of the mutual fund distribution is done by banks, which comes under RBI���s jurisdiction.

A case in point is the recent issue on mutual funds offering insurance cover, which SEBI took up with the government and IRDA as it was felt that the Life Insurance Council had taken a unilateral decision on it.