Three in race to become SRO for MF distributors

The Association of Mutual Funds of India (Amfi), the lobbying arm of the MF industry, together with distributor body Financial Intermediaries Association of India (FIAI) and education provider FPSB India, are the three entities that have filed applications with Sebi to become a self-regulatory organisation (SRO) for distributors of mutual fund products. Wednesday was the last day for filing applications.

Although Amfi oversees their functioning, the distributor community is currently not regulated. About 50,000 distributors (including independent financial advisors, national distributors and banks) are currently compliant with know-your-distributor norms. Sebi had put a public notice dated March 21, 2013, on its website inviting applications from entities for being recognised as an SRO for distributors of MF products. Last month, Sebi announced that there would be a single SRO for all distributors.

Speaking on the sidelines of the mutual summit organised by CII last month, Amfi CEO HN Sinor had said the firm was in the process of filing an application for an SRO and that the new entity would be called the Institute of Mutual Funds Intermediaries (Imfi). A few fund officials that FE spoke to said the asset management companies were supporting Amfi?s candidature as the body had been around for more than a decade and had worked closely with the MF industry, including fund houses and distributors.

Industry observers said the creation of an SRO is a step in the right direction. ?It will lend much greater credibility to the distribution business and increase investors’ confidence as they will now be dealing with a regulated entity,? said Dhruv Mehta, chairman, Foundation of Independent Financial Advisors, a body of IFAs. He added the SRO will help improve the level of best practices, awareness and education among distributors.

Sebi?s SRO Regulations require that any entity desirous of being recognised as an SRO must be a company registered under Section 25 of the Companies Act, 1956, and must have a minimum net worth of R1 crore. While Sebi has indicated that the SRO would be selected after following a fair and transparent procedure, the exact criteria based on which it intends to make the final selection remains unclear. An email sent to Sebi asking it to elaborate on the selection criteria remained unanswered at the time of going to press.

Financial Intermediaries Association of India (FIAI) was incorporated four years ago as a non-profit organisation under Section 25 of the Companies Act, 1956. Its current members include national distributors and banks such as Bajaj Capital, NJ India Invest, Karvy, ING Financial Services, Axis Capital, Capital First and Standard Chartered Bank.