The Securities and Exchange Board of India (SEBI) on Monday released a note requiring asset management companies (AMCs) to take greater responsibility for their distribution channels.
The market regulator said in its circular that before empanelling distributors, mutual funds will have to ensure that the sales process of distributors is de-linked from their customer-risk evaluation team.
Mutual funds will have to evaluate the track records of their distributors as well as take steps to minimise mis-selling, said the circular. ''It has been felt that in the interest of investors there is a need to regulate the distributors through AMCs,'' it said.
The SEBI circular said distributors' advisory process should be different from the sales, while defining the principle of 'appropriateness' of products to customer categories. "Appropriateness is defined as selling only that product categorisation that is defined as best suited for investors within a defined upper ceiling of risk appetite," it said.
The distributor has to keep a record of a written communication of its advice to its client in case a product is not suitable for him, the circular said. "A customer confirmation to the effect that the transaction is execution-only notwithstanding the advice of in-appropriateness from that distributor be obtained prior to the execution of the transaction," the regulator said.
Fund houses will also have to disclose, on their respective websites, the total commission and expenses paid to those distributors, who have points of presence in more than 20 locations and have received commissions of over Rs1 crore on an annual basis across industry.