New rules soon for wealth managers; RBI, Sebi to get more teeth

A new set of rules are underway for an estimated $1-trillion wealth management industry and banking regulator the Reserve Bank of India (RBI) and capital market watchdog the Securities and Exchange Board of India (Sebi) may be made jointly responsible for implementing these regulations and keeping a watch for any violations.

The government has pooled in its various regulatory resources to frame a comprehensive rule-book for wealth management practices by seeking inputs for the same from RBI, Sebi and other financial sector regulators, a senior official said.

Given the size of the industry and therefore a higher risk of large-scale frauds or manipulations, the new rules could comprise of Sebi and RBI being given powers to impose strict penalties, he added.

While the RBI and Sebi would be primarily responsible for compliance of the rules, help would be sought from other regulators, namely commodity regulator FMC, insurance watchdog IRDA and pension fund regulator PFRDA, whenever needed, the official with one of the regulators said.

The proposed regulations are currently being given the final touches and would be soon announced by the government, he added. The new set of rules are being framed under the aegis of Financial Stability and Development Council (FSDC), a high-level regulatory body chaired by Finance Minister that was set up by the government in December 2010 in place of erstwhile High Level Coordination Committee on Financial Markets.

The FSDC has held its two meetings so far -- first in December 2010 and another one earlier this year -- and the issue of the proposed wealth management regulations was discussed on both the occasions. Besides, a sub-committee of FSDC held its first meeting last week, which was chaired by RBI Governor D Subbarao and was attended by Sebi Chairman U K Sinha among other regulators and Finance Ministry officials.

This Sub-Committee also discussed the regulatory issues relating to wealth management and private banking businesses undertaken by the banks.

The need for new norms was felt after an estimated Rs 400-crore fraud allegedly perpetuated by a relationship manager at a Gurgaon branch of Citibank and initial probe into the matter pointing towards various loopholes in existing regulations.

Subsequently, the government had roped in all the financial sector regulators to formulate the all-encompassing and stricter wealth management guidelines, given the huge surge in the size of assets managed by them.

Although there are no official figures for it, the size of wealth management industry is pegged at about $1 trillion -- nearly double the size a couple of years ago.