Regulator keeps pressing pause button on Investment Advisers Regulations

Parvatha Vardhini C BL Research Bureau | Updated on January 09, 2018 Published on December 28, 2017

Sets the ball rolling once again for another set of proposals, public comments

Even as the market regulator took several key decisions, it once again pressed the pause button on amendments to the Investment Advisers Regulations, 2013. These amendments are aimed at addressing regulatory gaps in standards governing intermediaries/ persons engaged in providing investment advisory services.

SEBI had earlier issued a consultation paper on October 07, 2016, and followed it up with yet another rejigged one on June 22, 2017, to address the issue. According to the board decision of Thursday, to prevent the conflict of interest between advising for investing in financial products and selling of financial products (when done by the same entity), SEBI will now bring out another consultation paper. It will again be thrown open for public for comments before any amendments are made.

The latest consultation paper will seek feedback around the proposal that there should be clear segregation between the two activities, i.e., providing investment advice and distribution of the investment products/ execution of investment transactions provided by an entity. Another proposal that mutual fund distributors while distributing their fund products need to explain the features of products to client, and shall ensure the principle of ‘appropriateness’ of products to the client is also on the cards.

Earlier proposals

To ensure segregation, in the paper released earlier in June this year, several proposals were made. The fact that these may not have been well received by the stakeholders may have prompted SEBI to defer the final decision and do another round of consultations.

In the June paper, the regulator had proposed that banks, NBFCs and body corporates could no longer offer investment advisory services through separate departments or divisions; they had to set up a separate subsidiary for the same. Also, investment advisors who provided holistic advise/financial planning across multiple categories such as stocks, insurance, pension, deposits, etc, needed to obtain permission from the specific regulator and comply with the regulations of the respective regulators, if any. Besides, it prevented MF distributors from offering financial planning services to the investor which requires risk profiling, financial goal setting, etc.

Distributors were also asked to stop using the nomenclature ‘Independent Financial Advisor’ or ‘Financial Advisor’. A disclosure form was also required to be given by the distributor to be signed by the client. Under this, the list of mutual funds where he is acting as a distributor, the commission earned/to be earned, suitability of the product sold to the investor and a disclaimer that he/she may not be acting in the best interest of investor were required to be mentioned. The last requirement, especially, may not have gone down well with the distributors.

Published on December 28, 2017

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