Sebi stresses for tighter leash on wealth managers

 Sebi has also flagged the need for concerted efforts and better coordination both at the operational as well as the surveillance level between the various regulators to protect the interests of investors in this increasingly complex world of financial products.

In fact, Sebi Executive Director K N Vaidhyanathan, who heads the investment management department that oversees foreign institutional investors and mutual funds at Sebi, was very vocal at a seminar over the weekend here, “We can’t remain silent. We need to come together and address how to regulate the wealth management sector which straddles across different jurisdictions.”

“The markets are far too advanced now. The wealth managers of today straddle across products that cut through banking, capital markets and insurance regulatory frameworks. We need to integrate across regulators, not just at the policy level, but at the operating and surveillance levels too,” he stressed. The strong pitch for coordination and firmer control on these nascent areas of the financial system assume critical importance in the light of the recent Rs 350 crore wealth management fraud that took place at the Gurgaon branch of Citi.

In the fraud, Citi’s one of the relationship managers allegedly used fraudulent documents to lure high networth individuals and companies such as the privately held Hero Investments, an arm of the country's largest two-wheeler maker.

Pointing fingers at relationship managers at wealth management firms, he said the risk in wealth management business lies with relationship manager, as his remuneration is not completely aligned with the interest of the customer.

“Relationship managers are the key risk in the wealth management business from an investor's point of view. His remuneration is not fully aligned with the interest of the investor,” he said.

“The institution guards its risk by getting certain documents from the customer, so the risk of the relationship manager is actually borne by the customer. Therefore, we regulators should better address the issue of regulating the relationship manager,” he added.

Following the fall of Lehman Brothers and the resultant global financial meltdown, the government has set up a super regulatory body called the Financial Stability & Development Council, with finance minister as chairman and RBI governor as deputy chairman.

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