MF distributors struggle to obey Sebi's KYC order

05/03/2010
MF distributors struggle to obey Sebi's KYC order
Mumbai: After flagging equity sales and shrinking margins, mutual fund distributors are facing another challenge — maintaining know-your-customer (KYC) documents with Registrar and Transfer Agents (RTAs). The Securities and Exchange Board of India’s (Sebi’s) deadline for this is April 1.

Sebi had said on December 11 that all documents related to an investor, including KYC and power of attorney details in respect of transactions/requests made through MF distributors, should be available with RTAs and asset management companies. It had asked fund houses to confirm if they were maintaining all investor-related documents.

Distributors said this had increased their work, affecting investments. "A lot of effort goes into searching data and documents. Submission and confirmation is another task. It is cumbersome to dig out documents of clients who have been investing for the past five-eight years.

"There is no clarity on what has to be done in case the KYC documents have been lost. So, rather than sales, most of our time is invested in complying with the order," said Rakesh Goyal, head of mutual fund distribution at Bonanza Portfolio.

Sebi has banned payment of commissions and brokerages till its order is complied with. "No further payment of commissions, fees and/or payments in any other mode should be made to such distributors till full compliance/completion of the steps," it had said.

As a result, fund houses haven't been paying commissions to distributors for two months. With commissions already shrinking after the entry loan ban, this has made things worse for distributors.

After an investor gives the documents, the fund house will have to independently confirm with all the three RTAs, CAMS, Karvy and Intime Spectrum. Only then can it pay the distributors.

"It is true that mutual funds are not paying any brokerage till intermediaries provide all KYC documents to RTAs. The power of attorney documents, which include account opening documents and previous transaction records, also have to be provided. We have been trying to meet the deadline.

"In our case, the documents are available in a digitised format, so it is not much of an issue for us. However, submitting KYC papers to RTAs will be an additional burden for ongoing fresh investments," said Vinit Arora, head of products and distribution at ICICI Securities.

Sebi's move came as KYC documents for online investors were not being given to RTAs. "The step is in the interest of investors and there is no option but to comply. Whatever documents are not there, we are trying to procure," said Nandeep Vaidya of India Infoline.

Source: Business Standard