Investment in mutual funds by politicians and bureaucrats, including existing and former heads of state, may soon come under the scanner of market regulator Securities & Exchange Board of India (Sebi).
According to agency reports, the market watchdog has asked mutual fund houses to strengthen their know-your-customer (KYC) norms. The new disclosures will also apply to Members of Parliament, Legislative Assembles and Legislative Councils. The new guidelines will come into effect from January 1, 2011.
The new KYC norms, being implemented to meet prevention of money laundering regulations, are to be followed by both new and existing investors in mutual funds. Earlier, KYC norms required investors to only disclose broad occupational details.
Market experts, however, are not quite sure how the new guidelines will help. “The existing provision of furnishing a permanent account number (PAN) can help Sebi track investments by bureaucrats and politicians in both stock markets and mutual funds,” said Sandeep Parekh, former executive director, Sebi.
Many also wondered how the process will be implemented. “At best, one can add another column in the mutual fund form for ‘public servants’ or ‘politicians’,” said an industry player. But politicians may not make investments in mutual funds directly.
A few months ago, Sebi asked fund houses to undertake KYC of customers, irrespective of the size of their investment, by year end. This rule was earlier applicable for investments of above Rs 50,000.
“As we understand it now, if any investor does not give his PAN and comply with other KYC norms by year end, his account will be frozen,” said the CEO of a fund house. Fund houses said once transactions in the account are halted, investors will be forced to comply with the guidelines.
Sebi’s move comes close on the heels of the Reserve Bank of India asking banks to be extra vigilant when dealing with what it called ‘politically-exposed persons’. RBI said that banks need to closely monitor such customers. It has termed as ‘low-risk’ salaried employees and customers that work in government departments, government-owned entities, regulators and statutory bodies.
