The Securities and Exchange Board of India (Sebi) is likely
to curb the practice of investment advisors, who are also acting as
distributors of the products they advise.
An indication to this effect was given by chairman U K Sinha on Friday when he said the regulator was concerned about investment advisors who are acting as distributors of financial products.
A discussion paper on regulating investment advisors and distributors, which will be put out for public comments, will suggest ways to address the issue. Sinha, speaking at a convocation programme of National Institute of Securities Market (NISM) said the discussion paper would be put out soon.
Experts said regulators across the world are trying to ensure that investment advisors were not influenced by commissions paid by product manufacturers (such as mutual fund houses) when they sell products to investors. The Indian securities regulator may take a look at the rules on this at various parts of the globe, before proposing the rules.
In the United Kingdom, commissions are charged from investors based on the service provided. Australia is also following the same path with a joint parliamentary committee proposing similar rules, said Rajesh Krishnamoorthy, MD of iFast Financial India, which has tie ups with a large number of mutual fund advisors in India.
It is not known if the Sebi draft paper will bring all financial distributors, who sell fixed deposits to mutual funds to pension funds and life insurance under one umbrella as they involve other regulators as well such as the Reserve Bank of India, Insurance Regulatory and Development Authority and PFRDA.
Krishnamurthy said the model adopted by the insurance sector, where agents sell products of only one insurer, if suggested, may be seen as negative by the industry.
On Alternative Investment Funds (AIF), on which Sebi had put out a discussion paper for comments, Sinha said the regulator received large number of responses from various stakeholders. The last date for sending the comments was on August 30.
“We have received good response to the paper. Comments received include worries by the market participants that we are going to regulate large pools of money. But such activities pose a risk; these are activities which nobody in India is regulating,” Sinha explained the rationale.
What Sebi is trying to do in consultation with other regulators was to see that whatever activities is taking place in financial system is taking place in the purview of some regulatory sight, he said.
C Rangarajan, chairman of the Economic Advisory Council to the Prime Minister, who spoke on the occasion, said the ongoing financial crisis has exposed the weaknesses of the regulatory framework in advanced countries. “The regulatory framework should cover all segments of financial markets. The rigours of regulation must be uniform among all segments to avoid regulatory arbitrage,” he said.
An indication to this effect was given by chairman U K Sinha on Friday when he said the regulator was concerned about investment advisors who are acting as distributors of financial products.
A discussion paper on regulating investment advisors and distributors, which will be put out for public comments, will suggest ways to address the issue. Sinha, speaking at a convocation programme of National Institute of Securities Market (NISM) said the discussion paper would be put out soon.
Experts said regulators across the world are trying to ensure that investment advisors were not influenced by commissions paid by product manufacturers (such as mutual fund houses) when they sell products to investors. The Indian securities regulator may take a look at the rules on this at various parts of the globe, before proposing the rules.
In the United Kingdom, commissions are charged from investors based on the service provided. Australia is also following the same path with a joint parliamentary committee proposing similar rules, said Rajesh Krishnamoorthy, MD of iFast Financial India, which has tie ups with a large number of mutual fund advisors in India.
It is not known if the Sebi draft paper will bring all financial distributors, who sell fixed deposits to mutual funds to pension funds and life insurance under one umbrella as they involve other regulators as well such as the Reserve Bank of India, Insurance Regulatory and Development Authority and PFRDA.
Krishnamurthy said the model adopted by the insurance sector, where agents sell products of only one insurer, if suggested, may be seen as negative by the industry.
On Alternative Investment Funds (AIF), on which Sebi had put out a discussion paper for comments, Sinha said the regulator received large number of responses from various stakeholders. The last date for sending the comments was on August 30.
“We have received good response to the paper. Comments received include worries by the market participants that we are going to regulate large pools of money. But such activities pose a risk; these are activities which nobody in India is regulating,” Sinha explained the rationale.
What Sebi is trying to do in consultation with other regulators was to see that whatever activities is taking place in financial system is taking place in the purview of some regulatory sight, he said.
C Rangarajan, chairman of the Economic Advisory Council to the Prime Minister, who spoke on the occasion, said the ongoing financial crisis has exposed the weaknesses of the regulatory framework in advanced countries. “The regulatory framework should cover all segments of financial markets. The rigours of regulation must be uniform among all segments to avoid regulatory arbitrage,” he said.
Source: http://www.mydigitalfc.com/news/sebi-may-ban-distributors-offering-investment-advice-579
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