Page 46 - Banking Finance November 2019

ARTICLE

Most serious ethical issues facing India (% share of respondents) providing investment
advice to clients is
required to be registered
with SEBI. Moreover, an
investment advisor should
be professionally qualified,
with a post-graduate
degree in finance,
accountancy, business
management, banking,
etc. or a graduate degree
with relevant experience
Source : “Global market sentiment survey 2015”, CFA institute
of at least five years. The
individual also needs to be certified by NISM or FPSB.
Mis-selling occurs partly because of a lack of financial
literacy amongst customers and partly because of a tendency The RBI's guidelines on regulating
among certain relationship managers to push products that wealth management services (WMS)
fetch higher fees. Earlier, distributors were paid upfront fees
at the time of investment and trail fees as long as the Y In June 2013, the Reserve Bank of India (RBI) issued draft
investor stayed invested in a staggered manner. As certain guidelines on wealth management and distribution
wealth managers had resorted to churning investments in services offered by banks:
order to gain from upfront commissions, AMFI issued a Y In April 2016, the RBI asked banks that currently offer
circular in 2015 to cap upfront commissions at 1%. investment advisory services through an internal
department to reorganize their operations within three
Some key proposals/guidelines by years and set up a subsidiary for investment advisory
services. This is to ensure an arm's length distance
regulators affecting the Indian wealth between banking activities and investment advisory

management space: services. Banks will need specific approval from the RBI
to set up the subsidiary. The subsidiary would have to
SRO for wealth management:
be registered with SEBI and would be subsequently
In 2011, capital markets regulator, Securities and Exchange regulated by SEBI.
Board of India (SEBI), proposed a self regulatory
organization (SRO) for the Indian wealth management Y Banks must ensure segregation of the marketing
sector that would help regulate business and serve as a function from operational processes, such as approval/
medium for SEBI to implement various wealth management transaction processes at branches. Banks must ensure
initiatives. that the sales process is transparent and products are
sold through trained employees in bank branches. Banks

Investment advisor guidelines by SEBI: should strictly follow KYC and AML rules, have a robust
internal grievance redressal machinery, and prevent
SEBI's Investors Advisor Regulations, which came into force their staff from receiving any incentive (cash as well as
in January 2013, focuses on the fact that an investment non-cash) directly from a third party issuer.
advisor has to be unbiased and should not have any conflict
of interest.
Additional regulatory layer proposed by
Investment advisory services have to be separated from all SEBI may keep foreign players away
other activities such as distribution. A distributor can sell from Indian wealth management
product but cannot offer advice.
business
Any entity/individual willing to engage in the business of With the aim to root out undeclared wealth and ensure tax

46 | 2019 | NOVEMBER | BANKING FINANCE