SEBI cracks whip on online mutual fund distributors

SEBI cracks whip on online mutual fund distributors August 13, 2010 03:22 PM Ravi SamaladSource: http://www.moneylife.in/article/72/8211.html The regulator has asked fund houses to furnish all investor-related documents by 22nd November which  were opened via online distribution channels Asset management companies (AMCs) will not be allowed to open any new accounts if they do not possess  all investor-related documents with them. A majority of these accounts mainly belonged to online distributors  who were not ready to share investor details with AMCs. "Online distributors were not disclosing the customers' identity and were merely saying that these transactions  were happening at their level. They said they would do business based on power of attorney (PoA) but the  Securities and Exchange Board of India (SEBI) did not agree. So now, SEBI is forcefully implementing the  norm by involving trustees. This is a good move by SEBI. Know your customer (KYC) norms are mandatory  for AMCs and it cannot be masked under a distributor's identity," said a top official from a fund house. According to industry players, some distributors were executing mutual fund (MF) trades by misusing PoA  signed by investors. "This is essentially for people who are selling MFs through online channels. They have to comply with  the Prevention of Money Laundering Act (PMLA). For offline clients, we are anyway filling up the application  forms and taking all details. SEBI is doing it ensure that no suspicious money is coming into MFs. Investors can also do transactions  over the phone, so PoA is required in that case. So whether the PoA is valid or not also needs to  be checked," said K Venkitesh, national head (distribution), Geojit BNP Paribas. Moneylife had reported on 29 July 2010 on how the Financial Intelligence Unit (FIU) had revised the  guidelines for Suspicious Transaction Reports (STRs) for MFs. (See: http://www.moneylife.in/article/81/7749.html).  SEBI in its 11 December 2009 circular had mandated fund houses to halt commissions paid to  distributors who did not have complete investor-related documents. Distributors were supposed  to submit all investor-related documents to AMCs. Moneylife had reported on 22 March 2010  on how distributors were unable to submit KYC documents to AMCs. (See: http://www.moneylife.in/article/8/4340.html). The SEBI circular states, "It appears that all the investor-related documentation is not available  with the AMCs. It has been observed that due to such incomplete documentation, investors' rights  to approach the AMCs directly are restricted and investors are forced to depend on the  distributors for executing any financial or non-financial transactions." AMCs will be allowed to open a new account only when they have all investor-related documents like PAN, KYC, specimen signature and PoA. The regulator has  asked the trustees of AMCs to submit a confirmation report by 22 November 2010. Existing accounts  will have to be updated by 15 November 2010.