Amfi to study global SRO models

The Association of Mutual Funds in India (Amfi) will begin consulations with its members to develop a self-regulatory model, close on the heels of Securities and Exchange Board of India (Sebi) chairman M Damodaran's call for the mutual fund industry to regulate itself.

The Self Regulatory Organisation (SRO) will be structured on the lines of similar bodies elsewhere, which address members' concerns as well as regulate unfair trade practices.

Speaking at the mutual fund summit on Wednesday, the Sebi chief said that Amfi is uniquely positioned for a regulatory role and could become India's first financial SRO.

He also made it clear that the proposed SRO should appoint representatives capable of regulating the industry and Sebi does not want to appoint any of its representatives on the board.

"We have an open mind on the issue. We have to discuss it with our members and are starting our internal consulations very soon. A committee will be studying the models followed by the european and eastern countries," said A P Kurian, chairman, Amfi.

The new SRO model will have to satisfy the demands of mutual funds as well as expectations of Sebi, he added.

Finance Minister P Chidambaram, during his budget speech, had talked of the need to have strong self-regulatory organisations in the capital markets. The proposal to convert Amfi into an SRO was mooted two years back.

However, at that time, the regulator was not satisfied with the model suggested by Amfi. Besides, some mutual fund members were not comfortable about their trade body stepping into the shoes of a regulator.

Industry watchers say the task of converting a trade body into a regulatory authority could prove burdensome for the industry, as it is yet to mature.

"This will be a hard job. The regulator is keen on funds regulating themselves. If the trade body is also the regulator, it would have to decide on crucial issues such as the role of distributors in the overall business and load structure of schemes. Such decisions will have to be accepted by all the players and this will be a tough job for the regulator," said an industry expert.

Nearly six months back, the Sebi chief had signalled regulations for distributors, who have been dominant in the mutual funds business.