SEBI working group on MFDs, investment advisers at advanced stage of submitting report: Manoj Kumar

As per the latest business developments, The Securities and Exchange Board of India (SEBI) working group examining the roles of mutual fund distributors (MFDs) and investment advisers (IAs) is at an advanced stage of submitting its report, SEBI executive director Manoj Kumar stated.

The committee is looking at how to address conflicts arising from the different roles of the two traders at large and how they can coexist while serving investor interests, Kumar told Moneycontrol on the sidelines of the Global Fintech Fest in Mumbai. Kumar did not provide a specific timeline.

“The simple philosophy is that going forward if there are any overlaps or challenges because of the different role these two traders at large are performing, how we can harmonise it so that both can coexist and serve the investor interest,” he stated.

Moneycontrol had noted in January that SEBI had formed the working group to examine the existing regulatory framework governing MFDs, overlaps with IAs, the scope of advice and compliance requirements, besides regulatory challenges and conflicts. The group's mandate additionally included examining options such as limited investment adviser licensing or deemed investment adviser status for MFDs.

The two categories operate under different regulatory frameworks and business models. MFDs distribute mutual fund products and earn commissions from fund houses, while investment advisers provide advisory services for a fee. MFDs are registered with the Association of Mutual Funds in India (AMFI), while investment advisers are registered with SEBI.

Under the existing investment adviser framework, an adviser generally cannot both distribute products and provide investment advice because of the potential conflict of interest. Investment advisers can advise clients on direct mutual fund plans based on their risk profile and charge an advisory fee. The working group was additionally looking at the distinction between the advice that can be provided by MFDs and the investment advice that falls under the IA framework.

On the proposed revamp of portfolio management services (PMS) regulations, Kumar stated the consultation paper had received a large number of comments from traders at large. “We are working on those comments and shortly you will see very refined, revamped and very simplified PMS regulation in place,” he stated.

Kumar stated simplifying regulations was a key focus of SEBI's ongoing reforms. “The simple concept as far as any regulation is concerned, and it is true for PMS additionally is that regulation should be simpler in understanding so that both market participants as well as the traders at large should be able to understand it better. And once they understand it better, then adoption becomes easier,” he stated.

Closing Auction-related issues

On discussions around impact of CAS in the mutual fund industry, Kumar stated SEBI had already issued an appropriate press release and that traders at large should be guided by it. “Work may be definitely in progress and you will soon see some consultation surrounding that,” he stated.

For the mutual fund industry, Kumar stated the issues that had been flagged to SEBI had been addressed appropriately. “Going forward additionally, we are going to sit with them. If any offering comes, we will definitely address,” he stated.