 "RBI norms on wealth mgmt services to be tightened")
The Reserve Bank of India (RBI) today proposed new guidelines on wealth management and financial product distribution services offered by banks to address concerns over mis-selling, lack of adequate grievance resolution mechanism, and weak internal control mechanisms.
"In the recent investigations undertaken by RBI in the light of reported allegations that certain banks were involved in structuring transactions to aid tax evasion and fraudulent transfer of funds, it was observed that many of these transactions centred around the wealth management services provided by banks as well as marketing of third-party products," said RBI in a statement.
Online magazine Cobrapost had alleged several private and public sector banks were offering money laundering as a product to their clients and were violating know-your-customer (KYC) as well as anti-money laundering (AML) rules.
Wealth management services offered by banks include referral services, investment advisory services and portfolio management services. While investment advisory and portfolio management services are regulated by the stock market regulator, referral services for insurance come under the purview of insurance regulator.
The central bank said banks should conduct all wealth management services either from a separate subsidiary or through a separately identifiable department or division. Lenders will need prior permission from RBI to set up these subsidiaries or departments.
The banking regulator said the sales process must be transparent and products should be marketed through branches that have personnel trained for the purpose. "There should be clear segregation of functions between marketing and operational staff. There should be a code of conduct for the sales personnel...The fact that the bank is acting only as an agent should be clearly brought to the notice of the customer," RBI noted.
RBI added that banks should strictly follow KYC and AML rules, have robust internal grievance redressal machinery, and prevent their staff from receiving any incentive - cash or non-cash -directly from a third-party issuer.
"Transactions above Rs 5,000 for these products should only be accepted through debit to customers account with the bank and not in cash or cheque of other banks," said the central bank.
In addition to the above guidelines, RBI also enhanced the specific guidelines on referral services, investment advisory services and portfolio management services.
"Banks, including their subsidiaries, who are already undertaking the above activities, may re-organise their structure in accordance with the final guidelines within a period of one year from the date of issue of final guidelines on the subject," the RBI statement noted.
"In the recent investigations undertaken by RBI in the light of reported allegations that certain banks were involved in structuring transactions to aid tax evasion and fraudulent transfer of funds, it was observed that many of these transactions centred around the wealth management services provided by banks as well as marketing of third-party products," said RBI in a statement.
Online magazine Cobrapost had alleged several private and public sector banks were offering money laundering as a product to their clients and were violating know-your-customer (KYC) as well as anti-money laundering (AML) rules.
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RBI said banks must have a board-approved policy on marketing and distribution of third-party products, which should consider the issue of addressing mis-selling. Banks also need to conform to the guidelines of sector-specific regulators and distribute products of only regulated financial entities.
Wealth management services offered by banks include referral services, investment advisory services and portfolio management services. While investment advisory and portfolio management services are regulated by the stock market regulator, referral services for insurance come under the purview of insurance regulator.
The central bank said banks should conduct all wealth management services either from a separate subsidiary or through a separately identifiable department or division. Lenders will need prior permission from RBI to set up these subsidiaries or departments.
The banking regulator said the sales process must be transparent and products should be marketed through branches that have personnel trained for the purpose. "There should be clear segregation of functions between marketing and operational staff. There should be a code of conduct for the sales personnel...The fact that the bank is acting only as an agent should be clearly brought to the notice of the customer," RBI noted.
RBI added that banks should strictly follow KYC and AML rules, have robust internal grievance redressal machinery, and prevent their staff from receiving any incentive - cash or non-cash -directly from a third-party issuer.
"Transactions above Rs 5,000 for these products should only be accepted through debit to customers account with the bank and not in cash or cheque of other banks," said the central bank.
In addition to the above guidelines, RBI also enhanced the specific guidelines on referral services, investment advisory services and portfolio management services.
"Banks, including their subsidiaries, who are already undertaking the above activities, may re-organise their structure in accordance with the final guidelines within a period of one year from the date of issue of final guidelines on the subject," the RBI statement noted.