Sebi defends Imfi choice as monitor

The Securities and Exchange Board of India (Sebi) has filed a response to the Supreme Court (SC), giving reasons as to why the Institution for Mutual Fund Intermediaries (Imfi) is eligible to be regarded as a self-regulatory organisation (SRO) and why its selection process in this regard was foolproof.

Imfi is promoted by the mutual fund sector lobby, the Association of Mutual Funds in India (Amfi).

One of the SRO applicants, Financial Planning Supervisory Foundation (FPSF), had petitioned the SC earlier this year against a Securities Appellate Tribunal (SAT) order of September 30 last year.

SAT had asked Sebi to restart the selection process for SROs, for not going by the needed process of selection, a view later endorsed by the ministry of finance, according to sources. However, SAT had maintained Sebi was justified in granting a certificate of recognition to Imfi under Regulation 3 of the 2004 SRO regulations.

While Sebi did initiate the process of reassessment for SROs, it was reprimanded by the apex court for initiating the process without the matter being heard and decided by the court.

FPSF has argued that Imfi was not eligible to become an SRO, as it was not a registered company on July 31, 2013, the cut-off date for applications. Sebi had put a public notice dated March 21, 2013, on its website, inviting applications from entities for being recognised as an SRO for distributors of MF products.

Sebi’s earlier norms required that any entity desirous of being recognised as an SRO must be a company registered under Section 25 of the Companies Act, 1956, and must have a minimum net worth of Rs 1 crore.

The third contender for the SRO race was Organisation of Financial Distributors, promoted by the Financial Intermediaries Association of India.

Distributors need to register with Amfi, which can cancel the registration for violation of any prescribed code of conduct or any other malpractice. Sector observers said creation of an SRO was a step in the right direction, lending more credibility to the distribution business. Also, that an SRO would help improve practices, awareness and education among distributors.

“The regulation of distributors is paramount to curb mis-selling and to ensure the suitability of the product for the investor community. An SRO will increase investor confidence, as they will now be dealing with a regulated entity,” said a sector official.

UNDER SCANNER

• Sebi has filed a response to the Supreme Court giving reasons as to why Imfi is eligible to be a self-regulatory organisation (SRO)
   
• It was earlier reprimanded by SC for initiating the reselection process for SRO without the matter being decided by the court
   
• The matter is currently pending before the SC
   
• Last year, SAT had asked Sebi to restart the selection process as Sebi had failed to give a hearing to the unsuccessful applicants
   
• FPSF has argued that Imfi was not eligible to become an SRO since it was not a registered company on July 31, 2013, the cut-off date for receiving SRO applications