SEBI cracks whip on online mutual fund distributors

The regulator has asked fund houses to furnish all investor-related documents by 22nd November which were opened via online distribution channels

Asset management companies (AMCs) will not be allowed to open any new accounts if they do not possess all investor-related documents with them. A majority of these accounts mainly belonged to online distributors who were not ready to share investor details with AMCs.

"Online distributors were not disclosing the customers' identity and were merely saying that these transactions were happening at their level. They said they would do business based on power of attorney (PoA) but the Securities and Exchange Board of India (SEBI) did not agree. So now, SEBI is forcefully implementing the norm by involving trustees. This is a good move by SEBI. Know your customer (KYC) norms are mandatory for AMCs and it cannot be masked under a distributor's identity," said a top official from a fund house.

According to industry players, some distributors were executing mutual fund (MF) trades by misusing PoA signed by investors.

"This is essentially for people who are selling MFs through online channels. They have to comply with the Prevention of Money Laundering Act (PMLA). For offline clients, we are anyway filling up the application forms and taking all details.

SEBI is doing it ensure that no suspicious money is coming into MFs. Investors can also do transactions over the phone, so PoA is required in that case. So whether the PoA is valid or not also needs to be checked," said K Venkitesh, national head (distribution), Geojit BNP Paribas.

Moneylife had reported on 29 July 2010 on how the Financial Intelligence Unit (FIU) had revised the guidelines for Suspicious Transaction Reports (STRs) for MFs.

 SEBI in its 11 December 2009 circular had mandated fund houses to halt commissions paid to distributors who did not have complete investor-related documents. Distributors were supposed to submit all investor-related documents to AMCs. Moneylife had reported on 22 March 2010 on how distributors were unable to submit KYC documents to AMCs.

The SEBI circular states, "It appears that all the investor-related documentation is not available with the AMCs. It has been observed that due to such incomplete documentation, investors' rights to approach the AMCs directly are restricted and investors are forced to depend on the distributors for executing any financial or non-financial transactions."

AMCs will be allowed to open a new account only when they have all
investor-related documents like PAN, KYC, specimen signature and PoA. The regulator has asked the trustees of AMCs to submit a confirmation report by 22 November 2010. Existing accounts will have to be updated by 15 November 2010.




6 years ago

The Control of SEBI is must on such organization, IRDA is a weak Body, See what KOTAK Life Insurance has done to their Policy Holders

Herd on the street: Cairn India, mining companies, Texmaco, Titagarh Wagons, VLS Finance, Jagatjit Industries, Force Motors

Cairn India: The market was crawling with rumours that Vedanta is in talks to take a stake in Cairn India.

Mining companies: The government is proposing to make it mandatory for mining companies to share 26% of profits with local communities or to provide 26% equity in mining entities to the affected people, mostly tribals, where excavation of minerals takes place.

Texmaco, Titagarh Wagons: The buzz is that the government will release rail wagon orders this month. In FY10, 18,000 wagons were meant to be procured and the same amount is supposed to be procured in FY11.However, no orders have been released in FY10. Had both years' orders been released, it would have meant an order-flow of Rs45 billion for the industry. The whole problem apparently started with four key wagon-makers writing to the railways, saying that no orders should be placed with the Rajasthan-based Cimmco Birla Ltd, revived recently under a Board for Industrial & Financial Reconstruction (BIFR) scheme. The letter raised legal issues about the tender criteria and ministry officials got involved. Orders from the railways came to a grinding halt.

Jagatjit Industries: There is interest building up in this stock due to rumours that the family feud between Anand Jaiswal and Jagatjit Jaiswal is close to being settled. In March 2009, the Company Law Board (CLB) had ruled that there was no merit in challenging the allotment of shares with differential voting rights (DVRs) as it was legally permissible. Anand and Jagatjit had moved the CLB against the company decision in 2004 on preferential allotment of shares with DVRs, giving Karamjit 64% voting rights on his 32% stake in the company. At that time itself, the two brothers had apparently agreed to the CLB-proposed settlement where Karamjit would buy out Anand and Jagatjit's 12% stake in the company for roughly Rs730 million.However, according to the latest shareholding pattern, 2.15 million shares held by Karamjit Jaiswal are shown under the pledged or otherwise encumbered account and placed in an escrow account. In addition to this, there is also talk of a takeover bid from UB. Jagatjit owns Aristocrat Liquor, Binnie's Malt and dairy products, and also makes glass containers.

VLS Finance: There is talk floating around of a favourable outcome in an ongoing case over Sunair Hotels. According to a report in Business India magazine, in 1995, VLS invested in Sunair Hotel and for Rs70 million, it got a 25% stake in this five-star hotel in Delhi, which runs the Metropolitan Nikko at Connaught Place. The balance Rs220 million was brought in by the promoters, the Gupta family, while a Singapore-based hotel chain, Accor Asia, was to bring in Rs10 million at a premium of Rs90. VLS also mobilised loans of Rs850 million, agreed to manage the public issue, and gave Sunair a security deposit of Rs100 million at an interest rate of 20%. VLS claims that within a year, Accor withdrew, and Sunair was not paying the quarterly interest on the deposits. VLS and the Guptas are mired in a legal battle over the property which, in 2007 itself, was valued at Rs8 billion. VSL says that according to the agreement, it would become the majority stakeholder.

Force Motors: There are some rumours of equity-expansion plans. In March 2010, Bajaj Holding & Investment increased its stake in the Firodia-controlled Force Motors to over 19%. Force is a Pune-based maker of light, medium and heavy duty trucks and buses.


BoR becomes part of ICICI, integration process starts

New Delhi: Udaipur-based Bank of Rajasthan (BoR) today became part of the country's largest private sector lender ICICI Bank following the Reserve Bank of India (RBI) approval to merger proposal of the two lenders, reports PTI.

All 463 branches of BoR have started functioning as ICICI Bank's as per the directive of the RBI.

"With this, ICICI Bank will have a branch network of about 2,500 branches, by far the largest among private sector banks. This will position the bank well to capitalise on the growth opportunities in the Indian economy," ICICI Bank CEO and managing director Chanda Kochhar said.

The merger "creates a good strategic fit, combining ICICI Bank's capital base and product suite with Bank of Rajasthan's branch network", she added.

This is the third acquisition by ICICI Bank. It had earlier acquired Bank of Madura way back in 2001 and Maharashtra-based Sangli Bank in 2007.

The integration, according sources, will take some time as IT systems will have to be integrated with the ICICI Bank network.

"The integration will be completed this month," Pravin Tayal, the promoter of the BoR had said.

With the merger, the balance sheet of ICICI Bank would cross Rs4 lakh crore. BoR has a total business of over Rs23,000 crore, against nearly Rs3,84,000 crore of ICICI Bank.

Meanwhile, the Reserve Bank has fixed Rs154.50 per share as price for dissenting shareholders of Bank of Rajasthan, BoR informed the Bombay Stock Exchange (BSE).

The BoR filing further said that its managing director and CEO G Padmanabhan, who was appointed by the RBI in November, stepped down yesterday.

It further said that meeting of the BoR board, scheduled to be held today, to approve the quarterly results, has been cancelled.

Earlier in May, the boards of both the banks approved a share-swap deal that valued BoR at over Rs3,000-crore.

The share swap ratio was fixed at one ICICI Bank share for every 4.72 shares of BoR.

Post approval by the shareholders, the banks moved RBI on 25th June for regulatory clearance.

The merger process, which was mired in controversy, moved ahead after the Calcutta High Court dismissed a petition by minority shareholders against the amalgamation.

The High Court also asked the petitioner to pay a cost of Rs50,000 for a frivolous case.


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