The Securities and Exchange Board of India (Sebi) is jointly working with other regulators to enhance norms for wealth management, which has been under the regulatory scanner since the Rs 400-crore Citibank India scam was exposed in December last year. According to a Sebi official, there is an urgent need for regulators to integrate at both operating and surveillance levels, to counter harmful product innovation.
“We are all on-board to look into this business (wealth management),” said K N Vaidyanathan, executive director, Sebi. “From our (Sebi’s) side, we first took the step of advising asset managers to start implementing additional due diligence measures for institutional distribution. We need to get together to have a common set of rules. The process is in progress. We will come out with it soon,” he said on sidelines of a management seminar.
Vaidyanathan, who looks after regulations related to mutual funds, foreign institutional investors and collective investment schemes, added that while various regulators collaborated at the policy level, there was a strong case for moving beyond these efforts.
“I think we made a great step with the Financial Stability and Development Council, but we need to integrate with regulators — not just at policy, but also at operating and surveillance levels,” he said when asked whether inter-regulatory coordination is a challenge. “Markets are far too advanced. Wealth managers on Friday straddle products which cut through banking, capital market and insurance regulatory frameworks. We can’t remain silent. We need to come together and address how to regulate wealth managers better,” he said.
He also added a relationship manager’s remuneration was not fully aligned with the investor’s interest. “The institution guards its risk by getting certain documents from the customer. So, the risk of the relationship manager is actually borne by the customer,” he said. Incidentally, high net worth individuals often give the power of attorney to relationship managers.
On a different note, Sebi will soon come out with guidelines to allow foreign individuals to invest in mutual fund schemes in India. In Union Budget 2011-12, finance minister Pranab Mukherjee allowed mutual funds to accept subscription from foreign investors, who comply with KYC (know your customer) norms.
“We are working on it. I would say it is a matter of weeks, not months,” said Vaidyanathan. “We are in the process of working with the Reserve Bank of India and ministry. Hopefully, we will come out with those guidelines soon,” he added.
