SRO status for MF distributors: SEBI to go by tribunal’s verdict

Market regulator SEBI is likely to go by the Securities Appellate Tribunal ruling on its in-principle nod to the Institution for Mutual Fund Intermediaries (IMFI) for becoming a self-regulatory organisation for mutual fund distributors.

The issue relates to SEBI designating IMFI as an SRO (self regulatory organisation) for mutual fund distributors. IMFI is floated by AMFI (Association for Mutual Funds in India).

SEBI had called for applications for an SRO for mutual fund distributors on or before July 31, 2013.

IMFI, Organisation of Financial Distributors (OFD) and Financial Planning Supervisory Foundation (FPSF) promoted by the Financial Planning Standards Board India (FPSB) were three applicants and SEBI awarded the SRO status to IMFI.

FPSF contested the regulator’s decision stating that the date of incorporation of IMFI according to the records of the Ministry of Corporate Affairs was August 2, 2013, while the deadline for application submission to SEBI for becoming an SRO was July 29, 2013.

FPSF also moved the Securities Appellate Tribunal on the issue.

Meanwhile, an RTI applicant, Shashank Prabhakar, approached the Finance Ministry stating that the regulator had not provided adequate response to his queries on the issue. FPSF had also appealed to the Finance Ministry contesting SEBI’s decision.

The Ministry on March 4, 19 and 28 sought comments and status report on the issue of approval from the market regulator.

Finance Secretary Arvind Mayaram in his March 28 letter to SEBI pointing to the issues raised by FPSF to the Ministry, asked the market regulator to respond to them.

File notings and comments on the internal correspondence of the Finance Ministry (copies available with Business Line ) state that the plain reading of the provisions of SEBI’s SRO regulations indicate that AMFI was not an eligible entity as on the relevant date (July 31, 2013).

Further, Ministy communications state that IMFI, OFD and FPSF were the three applicants. And except for FPSF, the date of registration of other two entities was on August 2, 2013 (for IMFI) and August 30, 2013 (for OFD) respectively, which is after July 31 — SEBI’s deadline for submission of applications.

SEBI in response to Business Line queries said: “It is stated that vide letter dated April 10, SEBI had already replied to the Ministry of Finance on the said matter. Further, one of the applicant (i.e. FPSF has filed an appeal before appellate tribunate. SEBI proposes to file its reply before SAT. The matter is sub-judice.”

In August, 2012 the SEBI board proposed the concept of SROs to regulate distributors with seed capital from SEBI and AMFI.

Tribunal’s final hearing on the issue is scheduled on July 1.