SEBI Asks Banks, Investment Advisers To Choose Between Advisory Or Distribution Business

Market regulator Securities and Exchange Board of India is looking to remove the conflict of interest that exists for an entity which distributes an investment product and advises on the same product. The regulatory today released its third consultation paper to amend the SEBI (Investment Advisers) Regulations, 2013.

For Individuals

The regulator has proposed that individuals who have registered as investment advisers shall not provide any distribution services in financial products, either directly or indirectly or through their immediate relatives. The regulator has defined immediate relative as spouse, parents, siblings or their children.

“This is clearly saying that if you are advising, your only source of income should be advisory. Even the people who are registered investment advisers today, their major income is through distribution through the arms length format,” said financial planner Harshvardhan Roongta,

Currently there are 782 individuals and firms who are registered as investment advisers with SEBI. Of the people who are already registered, and have to make a choice by March 31, 2019, many may want to stick to distribution and surrender their investment advisory licence, said Roongta.

For Banks, NBFCs And Corporate Bodies

Firms which wish to register as investment advisers will not be allowed to provide distribution services in financial products, either directly or through their holding companies, associate companies or subsidiaries, the regulator said in its consultation paper. Similarly, those banks and firms which provide distribution services will not be allowed to offer investment advisory services.

The regulator will give entities time till the end of March 2019 to choose between advisory or distribution services.

It has allowed mutual fund distributors to explain features of the product and also ensure principles of ‘appropriateness' of the product for the client. They would also require to disclose all affiliations with mutual funds.

The regulator sought public comments by Jan. 23.