The Supreme Court has allowed markets regulator Sebi to go ahead with certain proposed amendments to self regulatory organisation (SRO) regulations, including appointment as SRO, that are necessary to regulate mutual fund products.
A Bench led by Chief Justice Ranjan Gogoi accepted Sebi’s plea that the selection process for appointment as SRO for distribution of Mutual Fund (MF) products is required in the public interest.
Seeking permission to go ahead with certain proposed amendments to SRO Regulations 2004, Sebi wants to start afresh by inviting fresh applications for selection of SRO and for grant of certificate of recognition in respect of distributors of MF products.
“They don’t need advance ruling. They want to change parameters to participate in the process. We allow them to go ahead,” the CJI said.
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Sebi said there are diverse practices in the industry regarding the relationships between asset management companies (AMCs) and distributors in marketing products and bringing in investments.
There is a need to have consistency in the practices, enforcement of code of conduct and taking disciplinary action if required. To regulate mutual funds, there is a need to have an SRO for distributors of MF products to oversee the functioning of this segment.
It is proposed that Sebi would be assisted in its regulatory functions by such SROs, which will represent a particular segment of intermediaries or distributors, and would be entrusted with several tasks like registration, supervision, redressal of investors’ grievances, training and eductaion of its members.
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“Given that SROs are the first level regulators which perform the crucial task of regulating a particular segment of the securities market, it is desirable that Sebi, after considering the experience and capability of an entity, grants recognition to it as a SRO… Such approach would be equitable and beneficial to the securities market and would give the board the necessary comfort of being assisted in its regulatory obligations by an SRO that has the necessary experience and regulatory perspective,” it told the apex court.
The market watchdog said the selection process had started in March 2013 and with the passage of time many more persons/entities have become eligible and it is confident that if it is permitted to start the process afresh more applications will be received, thereby broadening the choice of selection.
