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Fund schemes: Sebi defends SRO selection

Tells SAT and finance ministry no conflict of interest on final choice, enough checks and balances in place

Jayshree Pyasi Mumbai
The Securities and Exchange Board of India (Sebi), in a legal tussle over selection of a self-regulatory body for sellers of mutual fund (MF) schemes, has denied favouring any of the three applicants.

In a reply to the Union finance ministry and the Securities Appellate Tribunal (SAT) on a query in this regard, it said it gave equal opportunity to all those interested in becoming self-regulatory organisations (SROs) for MF distributors.

Financial Planning Standards Board of India (FPSB), one of the three applicants, had petitioned SAT against a Sebi order dated February, which had given in-principle approval to the Institute of Mutual Fund Intermediaries (Imfi), promoted by the Association of Mutual Funds in India (Amfi), to act as an SRO.
 
SAT to likely to hear the appeal next month.

SEBI’S DEFENSIVE STANCE
  • FPSB has not highlighted why making IMFI an SRO is conflict of interest
  • FPSB merely raising technical issues
  • IMFI would be a separate company, which will represent the distributors
  • Cut-off date was for receipt of applications from interested group and not to meet all compliances
  • AMFI stated to SAT that delay in receiving registration was due to technical issues
  • SAT to hear the case on August 8

FPSB contends appointment of Imfi amounts to a conflict of interest. And, that Imfi was incorporated as a company after it applied to Sebi.

In a detailed reply, the market watchdog has stated FPSB is raising technical issues and had failed to highlight how appointment of Imfi as an SRO would amount to a conflict of interest. Sebi says Imfi would be a separate company representing the distributors; Amfi represents the interest of MF companies.

On the incorporation date of Imfi, the regulator has stated the cutoff date of July 31, 2013, was for receipt of applications from interested groups, not for compliance with the various requirements.

FPSB, with the help of the Right to Information law, had established that Imfi gave it application to become an SRO on July 23 but got its certificate of incorporation two days after the cutoff date.

“Sebi had granted in-principle approval for acting as an SRO to a phantom applicant which was not a legal person at the time of application, in direct and clear violation of the SRO Regulations and of common law principles and jurisprudence,” FPSB had stated.

Amfi has told SAT the delay in its receiving the certificate of registration from the registrar of companies was due to some technical and operational issues.

Sebi’s reply also says while selecting Imfi it had ensured the SRO would be an independent body. Imfi was granted approval on the condition that of the four elected directors on the SRO board, there would be equal number representation from the distributor community and asset management companies, Sebi has said.

Imfi would be also required to appoint various committees — on disciplinary matters, screening, arbitration and remuneration. The chairmen of the disciplinary and arbitration committees would mandatorily need to be independent members, the regulator further said.

The existence of Imfi’s parent entity since 1995 is said to have worked in its favour. Amfi had, in the absence of an SRO, been issuing code of conduct for intermediaries and Sebi had been been using Amfi’s guidance in their circulars as a direction to distributors.  Amfi has also been registering the distributors.

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First Published: Jul 04 2014 | 11:40 PM IST

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