SEBI cracks whip on online mutual fund distributors
Ravi Samalad 13 August 2010

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.

1 decade 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
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