SEBI wants tighter leash on wealth managers

PTI Mumbai | Updated on March 13, 2011


If a SEBI official has his way, wealth managers will soon have stern laws governing them.

The SEBI Executive Director, Mr K.N. Vaidhyanathan, who heads the investment management department that oversees foreign institutional investors and mutual funds at SEBI, was vocal abut his views at a seminar over the weekend here.

“We can't remain silent. We need to come together and address how to regulate the wealth management sector which straddles across different jurisdictions.

“The markets are far too advanced now. The wealth managers of today straddle across products that cut through banking, capital markets and insurance regulatory frameworks. We need to integrate across regulators, not just at the policy level, but at the operating and surveillance levels too.”

SEBI has also flagged the need for concerted efforts and better coordination at operational and surveillance levels between the various regulators to protect the interests of investors in this increasingly complex world of financial products.

The strong pitch for coordination and firmer control on these nascent areas of the financial system assume critical importance in the light of the recent Rs 350-crore wealth management fraud that took place at the Gurgaon branch of Citibank.

In the fraud, a relationship manager of Citibank allegedly used fraudulent documents to lure high net worth individuals and companies such as the privately held Hero Investments, an arm of the country's largest two-wheeler maker.

Mr Vaidhyanathan said the risk in the wealth management business lies with the relationship manager, as his remuneration is not completely aligned with the interest of the customer. “Relationship managers are the key risk in the wealth management business from an investor's point of view. His remuneration is not fully aligned with the interest of the investor.”

He said regulations are required to safeguard customers. “The institution guards its risk by getting certain documents from the customer, so the risk of the relationship manager is actually borne by the customer. Therefore, we regulators should better address the issue of regulating the relationship manager,” Mr Vaidhyanathan added.

Reacting to the SEBI Executive Director's comment, the Chief Executive of Karvy Private Wealth Management, Mr Hrishikesh Parandekar, said, “Such regulatory steps will definitely help the industry in a regulated manners, so that another bad name can be avoided.

“At Karvy, we have a multi-layer screening process of our relationship managers and wealth managers, plus a long induction programme. Having said so, no authority on earth can prevent a person from committing a crime if he or she is hell-bent on committing it.”

The domestic private wealth management sector is pegged at round Rs 2 lakh crore and had been growing at a compounded annual growth rate of 25 per cent, Mr Parandekar said.

Another private manager said while it will be easier to work under one umbrella regulation instead of having a different regulators for each product, it will increase the cost of operations for firms, as they would have to put in place new systems and infrastructure to comply with new norms.

Published on March 13, 2011

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