Sebi to ban intermediate pooling for mutual fund transactions

In a move to protect the interest of mutual fund investors, Sebi on Monday announced banning "intermediate pooling" of funds and units by mutual fund distributors, investment advisers, channel partners, platforms and other entities.

The new rule, to come into force from April 1, 2022, will not be applicable for Sebi-registered portfolio managers. Besides, asset management companies (AMCs) will have to put in place necessary systems to ensure that transactions of funds and units pertaining to subscription as well as redemption are directly done between the accounts of the investors and the mutual fund scheme accounts concerned.

There will not be any intermediate pooling, Sebi said. Coming out with a detailed circular on Monday, the regulator also said that AMCs will be liable to compensate for losses to a unitholder due to unauthorised transactions resulting from fraud, negligence or deficiency on the part of the AMCs.

Sebi said it has been observed that based on a bilateral understanding with AMCs, a few platforms pool the clients' funds into a nodal account and subsequently transfer to AMCs either on per transaction basis or lump sum basis.

"AMCs shall ensure that intermediate pooling of funds and/or units in any manner by MFDs, IAs, MFU, channel partners or any other service providers/ platforms, by whatsoever name called, are discontinued for MF transactions," the circular said.

MFDs are Mutual Fund Distributors, IAs are Investment Advisers and MFU is Mutual Fund Utilities. The latest decision has been taken after discussions with stakeholders and recommendations of Sebi's Mutual Fund Advisory Committee. The regulator noted that AMCs should ensure that financial and non-financial transactions can be executed only if there is a service agreement between the AMC concerned and the service provider/platform.

"MFDs, IAs, MFU, channel partners and other entities (including online platforms) facilitating MF transactions shall not accept payment through one-time mandate or issuance of mandates/instruments in their name for mutual fund transactions," Sebi said.

Also, cheque payments from investors should be made in favour of the respective MF schemes only. The Association of Mutual Funds of India (AMFI), in consultation with Sebi, will issue guidelines for AMCs about mitigating risks of co-mingling of funds at the level of payment aggregators/payment gateways involved in mutual fund transactions.

According to Sebi, AMCs will ensure that detailed information at each stage of the relevant transaction, including rejection, should be made available at the same time to all the stakeholders involved in the transactions.

Only payment-related information required to ensure reconciliation and traceability will be made available to the payment aggregators.

"The onus of compliance with PMLA provisions and not permitting usage of third party bank account payments continues to lie with the AMCs," Sebi said. For the redemption of mutual fund units, there will be two-factor authentication for online transactions and a signature method for offline transactions.

"AMC would be liable to compensate for losses, if any, occurred to a unitholder, where unauthorised transaction(s) occur(s) in unit holder’s folio due to fraud/negligence/deficiency on the part of the AMC, employee of AMC or persons/entities whose services have been availed by the AMC, including the platform providers, MFDs, RTAs, MFU, and channel partners, irrespective of whether or not the fraud is reported by the unitholder," the circular said.

However, any unauthorised transactions by investment advisors while providing services to the unitholders would not be considered as a liability of the AMC. To strengthen control for verification of key details of investors like bank account details, email id and mobile number, AMFI will issue guidelines in consultation with Sebi.

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