Fin product distribution commissions to be capped at 5%: Sebi

Noting that the 'push factor' of paying high commission to sales force is a driving force for proliferation of illegal deposit schemes, market regulator Sebi today said such payouts for sale of all fund-raising will be capped at 5 per cent to prevent mis-selling soon.
"The 'push factor' was brought to the notice of the Standing Committee of Parliament which has recently submitted a report on change in legislation and one of the things which they have accepted is the existence of this push factor," Sebi whole-time member S Raman said.
"Now, very soon, if the legislation is passed, and when it is passed, commission of anything more than 3-5 per cent for any type of fund raising in this country will be illegal."

Stating that in the last three years since it was empowered with changes in the statutes, Sebi has passed 325 orders against such unscrupulous schemes, Raman said Sebi has found that greed of higher returns is not the biggest driving factors as interest offered is only 10-12 per cent.
He said it was found that at times, agents were paid up to 35 per cent of the amount as commissions which resulted in such products getting pushed.
In order to curb the activities of such illegal deposit taking done by companies like Sahara and PACL, the Government will be tabling the 'The Banning of Unregulated Deposit Schemes and Protection of Depositors' Interests Bill' in Parliament during the ongoing session.

According to reports, the Bill seeks to create special courts at the state level to handle cases of such frauds, and has provisions of jail terms of up to five years.
Raman, who was speaking on the sidelines of an event at RBI to launch a special website for the State Level Coordination Committee (SLCC) initiative, also suggested the inclusion of the Enforcement Directorate and Agriculture Ministry's cooperatives department on the panels.
He said there is "huge element of money laundering" in such schemes due to which it is essential to have ED in the panel, while the cooperatives department is essential because it regulates the multi-state cooperative societies.