The Securities and Exchange Board of India has set up separate working groups for brokers and mutual funds to facilitate ease of doing business, in what is part of a broader initiative being driven by the Union government.
The aim is to streamline compliance norms, reduce paperwork and reporting requirements. On the agenda could be pruning older regulations, easing KYC requirements and greater thrust on digitisation. The respective groups have held preliminary discussions and are expected to give out more detailed submissions to the regulator next month, said people in the know. The Association of Mutual Funds in India (AMFI) will seek feedback from various AMCs which will then be submitted to the working group.
“Simplifying compliance procedures, harmonising reporting standards, and integrating digital platforms can ease the administrative load on brokers. Fostering education and awareness initiatives around compliance changes could empower brokers to stay ahead of evolving regulatory landscapes,” said Deepak Singh, Deputy CEO, Reliance Securities.
Changes in norms
The regulator has effected a number of changes for brokers in the past year. It directed the brokers to settle running accounts of funds of the client on the first Friday of every quarter. Demat debit and pledge instruction mechanism was introduced for transfer and pledging/re-pledging of clients’ securities. This was to curb possible misuse of client’s power of attorney by stock brokers.
SEBI has increased the requirements of certain qualified stock brokers and changed the cyber security standards for brokers. Upstreaming of client funds and secondary market trading that entails blocking funds in an investor’s bank account are being phased in.
“Each additional compliance has a cost attached, which may not be compensated by the clients. Small and medium sized brokers may not have the technology and manpower to deal with the many requirements. Errors of omission and commission are inviting heavy penalties which can be quite onerous for the smaller brokers,” said Alok Churiwala, Managing Director, Churiwala Securities.
Mutual fund officials said the aim will be to weed out duplication and certain legacy processes and reduce the compliance burden without bringing the governance standards down. “Onboarding clients is the biggest pain point; every time a new regulatory requirement comes in, it adds to the cost of onboarding. Several requirements such as specifying nomination details and Aadhaar PAN linkage have been implemented with retrospective effect which is leading to a lot of transactions getting rejected,” said a senior official.
He added that a lot of information is given to trustees, AMC boards and SEBI in multiple formats at different frequencies which carry overlapping information. This can be easily reduced. Over the past year, SEBI has tightened rules for trustees and AMC boards and brought MFs under the ambit of insider trading. SEBI has reportedly also formed a working group for alternative investment funds, with similar objectives.