Now, mutual fund mis-sellers under radar

Unique employee code for every sales person selling funds

Relationship managers (RMs) of banks or distributors will find it tougher to get away with mis-selling of mutual fund products. Association of Mutual Funds in India (AMFI) has mandated all executives of banks and distribution firms to provide an Employees' Unique Identification Number (EUIN) while selling mutual fund schemes.

The move is aimed at making RMs accountable for what they sell as various instances of mis-selling continues to plague the mutual-fund industry.

“The aim of the EUIN is to keep track of this mis-selling that happens. An investor does not know until 4 or 5 years later that he has been mis-sold a product. Then it becomes difficult to track down the employee who sold it as he may left the organisation by then,” said V Ramesh, Deputy Chief Executive, AMFI.

AMFI has made it mandatory for RMs to use EUIN in the sale forms from June 01. Till then, distributors and banks provide their AMFI Registration Number (ARN) in the forms.

Securities and Exchange Board of India (Sebi) has been growing increasingly concerned about the rampant mis-selling of products in the mutual fund space.  Mutual fund industry officials said the regulator has been flooded with complaints from clients of various multinational banks, which have been accused of mis-selling. These include selling products beyond the risk capabilities of the clients with false guarantees of returns.

This led to Sebi issuing an order in September 2012 asking AMFI to create a unique identity number of the employee or relationship manager or sales person of the distributor involved in the sale of MF products. To generate the EUIN, employees have to pass the NISM examination and register themselves with AMFI. Firms were given time till June to comply with the regulation.

“Employees selected for the purpose of selling mutual fund products were already being trained and registered with AMFI by the organisations. While they had their individual ARNs, they were only required to provide the corporate ARN at the time of the sale,” said Debasish Mallick, Managing Director & Chief Executive Director, IDBI Asset Management.

However, not all employees who sold MFs were qualified or registered, said officials. Some were given internal employee codes and information on these employees remained within the organisation.

“The idea is to now externalise the information so that AMFI and Sebi can now go specifically down to that employee who was involved in mis-selling and then action can be taken against him,” said Askhay Gupta, Chief Executive Officer, Peerless Mutual Fund. Such employees are first black-listed and then banned, if proven guilty of mis-sellling.

The EUIN also acts like a credit-score of the employees tracking other activities of the seller like the number of sales done, the sort of investment advice given, among others.