Sebi for stricter separation on investment products

The Securities and Exchange Board of India (Sebi) on Thursday proposed to more clearly segregate entities advising on investment products, from those selling them in an effort to prevent conflicts of interest.

Under current rules, companies are allowed both to advise and sell mutual funds or other investment products only through “separately identifiable departments or divisions”, which must maintain an “arms-length relationship” between the two functions.

Fees charged for each service must also be clearly separated. But on Thursday, Sebi sought to make that separation more clear, proposing that companies would no longer be able to offer both advisory and distribution services unless they were split into separate subsidiaries, proposing that the division be completed within six months.

The Sebi also said those providing investment advice must have proper permission from regulators of the products about which they give advice.

“To prevent the conflict of interest that exists between advising of investment products and selling of investment products by the same entity/person, there should be clear segregation between these two activities,” Sebi said in a draft proposal.

The regulator also said that mutual fund distributors — third-party companies hired by asset managers to sell investment products to retail investors — would not be able to offer investment advice beyond explaining the characteristics and “suitability” of schemes.

Over the past several years, Sebi has sought to tighten supervision of the mutual fund industry after the sector suffered from frequent accusations that distributors and asset managers were colluding to sell specific schemes, regardless of whether they actually suited the needs of retail investors.

The Sebi said that market participants needed to submit their responses to the proposals by July 14.

25% public float issue back in govt’s court

The Sebi has ruled out any “abeyance” of 25% public float norm deadline for PSUs, and said it cannot decide on extending the time limit and wants government to take a decision.As per Sebi rules, the government stake in PSUs should be 75% or less by August 2017, reports PTI from New Delhi.

“There is a proposal from the department of investment and public asset management that the August 2017 deadline will be too close. They have brought up some arguments. However, extension of the deadline cannot be done at Sebi’s level. The issue has been referred to the Finance Ministry, which will take a view on that,” Sebi Chairman Ajay Tyagi said.