House panel moots cover for collective investment schemes

To curb ponzi activity, a Parliamentary panel has suggested deposit-linked insurance cover for collective investment schemes as well as capping of commission paid to agents soliciting money from investors.
The suggestions came against the backdrop of increasing instances of people getting duped by investment schemes.
In its report, the Parliamentary Standing Committee on Finance has said one of the major factors for unauthorised money mobilisation could be attributable to the high rates of commission paid to the agents, who in turn go all-out to lure gullible public, particularly in non-metro areas.
"Thus, with a view to discouraging this trend and dis-incentivising the same, the committee would recommend that payment of commission to agents may be legally capped at a nominal rate of, say, 2 per cent," it noted.

Besides, the panel has recommended deposit-linked insurance for all collective investment schemes (CIS), apart from having in place a provision for a minimum capital reserve to be maintained with the regulator as a safety valve against default.
On presentation of audited accounts by various entities, the panel -- headed by former law minister Veerappa Moily -- said it should be made mandatory that deposits and borrowings beyond a certain threshold are given separately.

"Banks should be instructed to inform related departments like Income Tax or regulators concerned like Sebi/RBI whenever cash deposits by such persons/entities exceed a certain limit.
"Pre-emptive provisions such as these would doubtlessly help curb the growing menace of illegal money circulation/ collection schemes and also enable adequate protection to depositors/investors," the report submitted recently to Lok Sabha Speaker Sumitra Mahajan said.

When Parliament is not in session, parliamentary panels often submit their reports to the Lok Sabha Speaker or Rajya Sabha Chairman. They are then tabled in Parliament in the next session.
Among others, the committee has recommended having a model central law with clear-cut definitions to curb illegal money pooling activity in the garb of direct selling.
The model law needs to define the scope of schemes in "unambiguous and specific terms" as the broad definition of 'money circulation' has scope for large-scale circumvention by unscrupulous operators, it added.