You can switch off notifications anytime using browser settings.Will self-regulation of mutual fund distributors benefit investors?Stock Analysis, IPO, Mutual Funds, Bonds & MoreWill self-regulation of mutual fund distributors benefit investors?ET Wealth talks to experts to find out if Sebis proposal to amend self-regulatory organisation rules for MF distributors and advisers will help investors.The mutual fund distribution and advisory businesses have undergone significant changes in recent years.Sebi has sought responses on the proposal to amend the self-regulatory organisation (SRO) rules for funddistributorsand advisers.

Will this framework benefit investors? ET Wealth talks to the experts.

Srikanth Meenakshi, Co-founder and COO, says YES

An SRO will create a dedicated body that could bring in focus and understanding to these businesseshow they serve customers, how they get paid for their services, and so on.

Themutual funddistribution and advisory businesses have undergone significant changes in recent years. One, the number of intermediaries has grown significantly over the past five years. Two, the market has more than doubled in terms of assets and investor base in the same time. Three, the variety of advisory delivery channels has evolved dramatically in this period.

Thus, it is very difficult to sustain the current situation of a broad market regulator working with a manufacturers body to regulate the all-important last-mile delivery of services to customers. An SRO, thus, will create a dedicated body that could bring in focus and understanding to these businesseshow they serve customers, how they get paid for their services etc.

Such understanding and attention will in turn bring about, hopefully, better services to investors. On the distributor front, the SRO should ensure a consistent level of servicing, by establishing enforceable standards and code of conduct for them. For advisers, regulating fees and ensuring that there is uniformity of service across product classes should be a priority.

Apart from these, establishing standards for new-age service delivery mechanisms such as robo-advisory would result in more transparency and faster evolution and adoption in that market segment. Lastly, one would hope that such an SRO would have a more clear-eyed understanding of the business economics of the intermediaries and make appropriate representations to the market regulator as and when needed.

An SRO will promote ethics and professionalism and enhance the reputation of MFs.

The move towards a self-regulatory organisation (SRO) is a good step for investors as well as distributors and advisers. Mutual fund distributors are an integral part of the industry considering that they play a major role is proliferating mutual fund schemes as an optimum investment avenue amongst the masses. In addition, they prove to be the missing link in the investor-adviser relationship, which is critical for the growth of the MF industry.

An SRO with a set standard of procedures will promote ethics, equality and professionalism and enhance the reputation of mutual funds as an investment class. Most often than not, the SRO accomplishes control through internal mechanisms that regulate the flow of business operations. This will bring consistency in practices across distributors, and in communication between distributors and advisers. Having a regulated body will also help in development of the distribution industry. Workshops undertaken by SRO to help investors understand their investments and advice on methods to mitigate risks will add to investor confidence.

Aashish Somaiyaa, MD and CEO,Motilal OswalAMC says YES

Aashish Somaiyaa MD and CEO, Motilal Oswal AMC

We do not have a regulator for intermediaries in MF distribution as it stands now.

The SRO is expected to be the first level of regulation for intermediaries involved in offering mutual funds to investors. Sebi has taken numerous steps on pricing and on product offerings to reduce scope of mis-selling. We also have a code of conduct and other expectations from distributors. But the Association of Mutual Funds is an industry body of manufacturers and their ability to discipline distributors in an open architecture model is very limited. Also, Sebi itself cannot be expected to directly regulate over a 100,000 intermediaries. Effectively we do not have a regulator for intermediaries engaged in mutual fund distribution as it stands now.

Having an SRO will ensure distribution is effectively regulated. This will give investors a forum like an ombudsman to whom their issues can be escalated and under a framework of rules certain actions may be taken. Once we see standards being dictated and monitored and action being taken against the errant, the wellperforming distributors will automatically stand out. They will benefit and it will also make the market place safer.

Jehangir Gai, Consumer Rights Activist says NO

The self-regulatory organisation (SRO) proposed by Sebi is restricted to private commercial organisations whose commitment to protecting the consumer is doubtful.

There is a clear distinction between a regulatory authority and a self-regulatory organisation. While the former is set up by the government to regulate the industry, the latter is a private entity from within the industry. A government-established regulator can frame rules to protect the consumer and can compel an industry member to adhere to them. In case of default, it can impose suitable fines or punishment such as suspension or derecognition.

In contrast, a self-regulator is effective when other members of the industry voluntarily agree to accept the self-regulator to mediate and resolve a grievance. Its decision cannot be enforced. It cannot levy fines or impose punishment. The Securities and Exchange Board of Indias (Sebi) consultation paper on self-regulatory organisation for mutual fund distributors and investment advisers deals with granting recognition to private organisations to function as self-regulators. The Advertising Standards Council of India is one of the leading NGOs functioning as a self-regulator, and has proved to be effective as its Complaints Committee comprises industry members as well as members from the civil society. The self-regulatory organisation (SRO) proposed by Sebi is restricted to private commercial organisations whose commitment to protecting the consumer is doubtful.

Hence, Clause 4.3.1 of Sebis notification provides for arbitration. The notification appears to be merely an exercise to make gullible consumers feel that the government is concerned about them.

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