AMFI GUIDELINES FOR CATEGORY-1 EOPs
SEBI, vide its circular no. SEBI/HO/IMD/IMD-PoD-1/P/CIR/2023/86 dated June 13, 2023, has issued regulatory framework for “Execution Only Platforms” (“EOPs”) for facilitating transactions in direct plans of schemes of Mutual Funds.
An EOP means any digital or online platform which facilitates transactions such as subscription, redemptions and switch transactions in direct plans of schemes of mutual funds” as defined in the above circular.
As per the aforesaid SEBI circular, an entity desirous of operating as an EOP may choose to operate under either the following two categories:
- Category 1 EOP: The entity shall obtain registration from Association of Mutual Funds in India (AMFI) and act as an agent of AMCs and integrate its systems with AMCs and/or RTAs authorized by such AMCs, to facilitate transactions in Mutual Funds.
- Category 2 EOP: The entity shall obtain registration as a Stock Broker in terms of the SEBI (Stock Brokers) Regulations, 1992 under the EOP segment of the Stock Exchanges and shall operate as an agent of investors and operate only through the platforms provided by the Stock Exchanges.
Further the circular mandates AMFI to issue necessary guidelines for Category 1 EOPs. Accordingly, these guidelines are issued by AMFI for Cat-1 EOPs
- 1) Grant of AMFI Registration
- 2) Eligibility Criteria
- 3) Rights and obligations of Cat-1 EOP
- 4) KYC & Onboarding process
- 5) Operational Risk Management
- 6) Technology, Cyber Security & Cyber resilience requirements
- 7) Grievance Redressal Mechanism
- 8) Code of Conduct for Cat-1 EOPs
- 9) Advertisement Code for Cat-1 EOPs on other websites, portals, etc.
- 10) Disclosures regarding Mutual Fund schemes
- 11) Disclosure related requirements
- 12) Maintenance of books of accounts & records
- 13) Compliance with applicable laws
An entity desirous of setting up an Execution Only Platform as an agent of an Asset Management Company (“AMC”) shall apply for registration with AMFI as a Cat-1 EOP in a prescribed form which shall be made available on AMFI website.
As per clause 13 of Annexure A of the SEBI Circular, the existing platforms of the RTAs, MF Central and MF Utilities India Pvt. Ltd. (MFU) which are providing services similar to Category 1 EOPs, are required to obtain suitable registration as EOPs within 3 months from the date of the SEBI Circular coming into force.
Any body-corporate which has the necessary technological infrastructure and the capability to provide digital technology platform to facilitate online transactions in mutual funds may apply for registration as Cat-1 EOP, provided such an entity is not registered (or does not intend to get registered) as Category 2 EOP with any stock exchange.
An entity desirous of obtaining registration as a Cat- 1 EOP shall ensure compliance with the following requirements, on a continuous basis:
- The entity shall be a body corporate.
- The entity has appointed a Compliance Officer.
The entity has appointed at least two qualified key managerial personnel with experience of at least three years each in the securities market.
- For the abovementioned purposes, “key managerial personnel” shall have the same meaning as assigned to the term in the Companies Act, 2013.
- Managerial personnel shall be deemed to be ‘qualified’ if he/she possesses a professional qualification in finance, accountancy, law, engineering, company secretaryship or management from a university or an institution recognized by the Central Government or any State Government or a foreign university or post-graduation in the Securities Market from National Institute of Securities Markets (NISM) of a duration not less than one year.
- EOP and its directors/partners, key managerial personnel are “fit and proper persons” as per the criteria as prescribed under Schedule II of the SEBI (Intermediaries) Regulations, 2008.
- The entity shall meet the requirement of net-worth of at least ₹1 crore. The term Net worth means the aggregate of the paid up capital and free reserves of the company after deducting therefrom miscellaneous expenditure to the extent not written off or adjusted or deferred revenue expenditure, intangible assets and accumulated losses [as defined in SEBI (Mutual Funds) Regulations, 1996].
- After obtaining AMFI registration and before facilitating any mutual fund transactions on its platform, the EOP shall enter into an agreement with the AMCs which should clearly define the scope of activities including the rights and obligations relating to EOP services.
- The Cat-1 EOPs shall have an objective, fair and transparent policy for providing execution services for products of AMCs. A copy of the same shall be shared with the AMC / appended to the agreement with the AMCs.
- The Cat-1 EOP shall integrate its system directly with the AMCs or their RTAs.
- As stated in the SEBI Circular, a Cat-1 EOP 1 shall facilitate financial transactions only under Direct Plan of Mutual Fund schemes, (i.e., subscription, redemption and switch, systematic transactions etc.). For avoidance of any doubt, it may be noted that a Cat-1 EOP shall not provide services related to Regular Plans of Mutual Fund schemes on its platform. Accordingly, the existing platforms of the RTAs, MFCentral and MFU which provide execution of both Direct Plan & Regular Plan transactions will have to segregate the access to and transactions in respect of Regular and Direct Plan appropriately.
The Cat-1 EOPs shall facilitate non-financial transactions including change of email id. or contact number or bank account details on its platform in respect of Mutual Funds/AMC with whom they have a tie-up, subject to the process laid down / agreed by the AMC.
- EOP will ensure that all the existing guidelines such as OTP validation through the alternate contact details, cooling period in case of change of both email and mobile number are strictly followed. Further, EOP shall send all the information to the RTA for updation in unitholders’ database .
- In case of acceptance of change of bank account details, EOP will ensure to ask for proof of old and new bank account duly signed by the unitholder. EOP will allow acceptance of change of bank requests for the folio value under the PAN of 1st unitholder upto ₹ 10 lakh.
- The RTA/AMC shall carry out the necessary due diligence /validation before updating the new bank details/contact details.
- The Cat-1 EOPs shall ensure compliance with clause 8 of Annexure A of the SEBI Circular w.r.t. handing conflict of interest, and shall maintain arm’s length relationship, if performing multiple activities within the same entity, so as to avoid any conflict of interest.
The Cat-1 EOPs may act as an aggregator (for other EOPs or RIAs) of the transactions in direct plans of schemes of Mutual Funds and provide services to investors/other intermediaries. In such situation, the transactions shall be routed under the registered Cat-1 EOP.
[Note: The term aggregator means providing execution services in Direct Plan of mutual fund schemes to other intermediaries for whom the applicable regulatory framework permits the intermediaries to provide execution services in Direct Plans of mutual funds schemes for their clients, i.e., SEBI registered Investment Advisers.]
- A Cat-1 EOP shall submit such annual confirmation /audit certificate to the AMCs and/or AMFI, in such format as may be prescribed by AMFI within 3 months from end of financial year towards compliance of all applicable regulatory requirements.
At the time of registration of an investor on its platform for mutual fund transactions, the EOP shall ensure that the customer has already completed the KYC requirements, i.e., the EOP shall onboard and register an investor on its platform only if the investor is fully KRA KYC compliant [including validation of email ID and/or mobile number by the KRA. The EOP shall also obtain complete bank account details of the investor i.e., Bank Name, CBS account number, and IFSC.
In case the investor has not complied with KYC, the EOP shall guide the investor in completing the digital KYC/Aadhaar based e-KYC by redirecting the investor to the website of the concerned AMC. The information and guidelines for completing the KYC in conventional (physical) mode shall also be made available including the link to download the KYC forms.
While onboarding a new investor, the EOP shall obtain/collect all the information of the investor (including that of the joint holder/s (if any) required for MF folio creation by the RTAs in accordance with the file format specified by the AMCs in the service level agreement with the EOP.
EOP shall also make available all the terms and conditions to the investor and obtain necessary declarations from the investor such as confirmation of having read and understood the SID/SAI etc. as provided by AMCs.
- The Cat-1 EOPs shall ensure that they have a comprehensive risk management framework covering all aspects of their operations and shall also ensure that risks associated with their operations are identified and managed, as stipulated under clause 6 of the SEBI Circular.
- The Cat-1 EOPs shall ensure compliance with relevant provisions including Chapter 16 of SEBI Master Circular for Mutual Funds dated May 19, 2023 as may be amended by SEBI or guidelines issued AMFI from time to time regarding discontinuation of usage of pool accounts for transactions in units of MFs on the platforms other than the Stock Exchange Platforms and shall strictly ensure that there is no pooling of funds for transaction executed by the investors through the EOP.
- The Cat-1 EOPs shall keep the AMCs informed of any events resulting in disruption of its EOP activities whether due to internal or external reasons without any delay.
- An EOP shall ensure that it has the appropriate/ necessary and scalable technological infrastructure and the capability to provide digital technology platform at all times to facilitate execution of online transactions in mutual funds, including appropriate cyber security measures to ensure security of electronic data during collection, transmission and storage as well as to mitigate risks related to execution of Mutual Fund transactions through its platform. The Platform should be scalable with robust cyber security protocols and supported through an API-based architecture. The EOP shall also put in place necessary Business Continuity Process (BCP) and Disaster Recovery (DR) to ensure uninterrupted service to the investors and the AMCs /in case of any disruptions / break-down / down time. An EOP shall comply with technology related requirements as prescribed in clause 9 the aforesaid SEBI Circular.
- The Cat-1 EOPs shall ensure compliance with the clause 9 of the Annexure-A of the SEBI Circular w.r.t. technology related requirements.
- The Cat-1 EOPs shall ensure compliance with cyber security and cyber resilience framework as prescribed in SEBI circular no. SEBI/HO/MIRSD/CIR/PB/2018/147 dated December 03, 2018 read with circular no. SEBI/HO/MIRSD/TPD/P/CIR/2022/80 dated June 07,2022, as may be amended by SEBI from time to time.
- The Cat-1 EOP shall comply with Information Technology Act and applicable rules and regulations and shall maintain such resources and transmission infrastructure and equipment as are reasonably necessary to maintain a high standard of transmission of data in terms of timing, quality, reliability, authenticity, integrity and content.
The Cat-1 EOPs shall put in place a well-defined mechanism to address grievances that may arise or likely to arise while carrying out EOP operations, as per the broad guidelines mentioned below :
- The EOP shall put in place a robust and efficient complaint redressal mechanism by hiring qualified / dedicated resources, impart them adequate training for better handling and satisfactory closures.
- The EOP shall appoint / nominate a designated Investor Relations Officer (IRO) who shall be responsible for customer’s grievance redressal in a timely manner.
- The EOP shall disclose the Investor Grievance Redressal Mechanism along with an Escalation Matrix on its website and mobile app that can be easily located by customers. This shall include the details of the IRO, Escalation level 1, Escalation level 2 etc. along with Name, designation, Email Address and Telephone No. of the incumbents. The Escalation matrix should also be a part of the complaint redressal communications between the EOP and its customers.
- On receiving a customer complaint, a written acknowledgment shall be sent to the customer, mentioning the service ticket / complaint number.
- The EOP shall take steps for redressal of complaint within the timelines as specified by AMCs in the agreement with the EOP.
- Further, the EOP shall disclose the number, nature and other particulars of the complaints received, if any, in such form as may be specified by AMFI on its website.
- The EOP shall take steps for redressal of grievances of the investor within the timelines as specified by the AMCs in the SLA with the EOP. In case of recurrent delay in redressal of grievances, the EOP shall be liable for such punitive action may be decided / deemed appropriate by AMFI, including suspension of AMFI registration of the EOP.
Category 1 EOP, the entity shall follow the code of conduct as specified below
- Integrity: An entity registered with AMFI as Category-1 Execution Only Platform (EOP), shall maintain high standards of integrity, promptitude and fairness in the conduct of its business.
- Exercise of due skill and care: An EOP shall act with due skill, care and diligence in the conduct of its business, and shall ensure that it and its personnel act in an ethical manner in all its dealings with investors.
- Compliance with statutory requirements: An EOP shall abide by all the applicable rules, regulations and guidelines issued by the Government, SEBI and AMFI.
Duty to the investors
- KYC Compliance: An EOP shall deal with / onboard only such investors who have completed the KYC process.
- Dealing with investors: An EOP, in its dealings with the general investing public and its investors shall treat all investors fairly and equally and shall not discriminate between different investors or refuse to deal with a small ticket investor merely on the grounds of the volume of business involved.
- Execution of Orders & Transaction confirmation: An EOP shall execute the investors’ orders for transactions in mutual fund units immediately upon the investor placing the order and notify the investor about the successful execution or failure thereof for any reason. The transaction data shall be sent to the respective RTA immediately upon the investor executing an order without any delay (i.e., the EOP shall not bunch or accumulate the investors’ transactions and send in batches) as per the mode of data transfer decided between EOP and AMC/RTA.
- Confidentiality of Investor’s data: An EOP shall not misuse, disclose or share the investor’s personal data or details of investments which comes to its possession in the course of its business relationship with any third party or group companies without explicit and express written consent of the investor which may be obtained electronically. In case the investor’s consent is obtained electronically, the menu shall prompt the investor to specifically provide consent (i.e., through an informed decision) and not by way of any passive / default option. The EOP shall preserve this electronic logs of such consent with them. The EOP shall also provide a facility to withdraw such consent to the investors. In this context, an EOP and its personnel shall abide by the ‘Data Sharing Principles’ prescribed by AMFI and the applicable laws on personal data protection. An EOP shall adhere to contractual agreements with the asset management companies (AMCs) relating to data privacy to ensure that the investors’ data is always protected, used only for the purpose for which it was obtained and purged as soon as the data is no longer required to be stored for rendering services for which it was collected or stored securely.
Fairness to Investors & Handling of Conflict of Interest: An EOP, when dealing with a investor, shall disclose that it is acting as an Agent of the AMCs with whom it has tied up. An EOP shall avoid conflict of interest and make adequate disclosure of its interest to the investor. In the event of a conflict of interest, the EOP shall inform the investor accordingly and shall take reasonable steps to resolve the same in an equitable manner and shall not seek to gain a direct or indirect personal advantage from the situation and shall not consider investors’ interest inferior to its own.
An EOP shall comply with the provisions w.r.t. ‘Handing of Conflict of Interest’ as prescribed in clause 8 of the SEBI Circular no. SEBI/HO/IMD/IMD-PoD-1/P/CIR/2023/86 dated June 13, 2023.
- Investment Advice: An EOP or any of its employees shall not render, directly or indirectly, any investment advice about any mutual fund scheme/s either on its own or in any other publicly accessible media, whether real-time or otherwise, nor make any recommendation to any investor for purchase or redemption of Units of any mutual fund scheme.
- Competence: An EOP shall have adequately trained staff and arrangements to render fair, prompt and competent services to its investors as well as appropriate grievance redressal mechanism.
- Grievance Redressal Mechanism: An EOP shall put in place an appropriate grievance redressal mechanism and endeavour to resolve the investor grievances/complaints arising out of its EOP activities promptly and shall provide complete assistance to the investor and the AMCs for redressal of grievances/ complaints. An EOP shall disclose the grievance redressal mechanism on its website and mobile application.
- Technological Infrastructure: An EOP shall ensure that it has the appropriate/ necessary and robust technological infrastructure and the capability to provide digital technology platform at all times to facilitate execution of online transactions in mutual funds, including appropriate cyber security measures to ensure security of electronic data during collection, transmission and storage as well as to mitigate risks related to execution of Mutual Fund transactions through its platform. The Platform should be scalable with robust cyber security protocols and supported through an API-based architecture. The EOP shall also put in place necessary Business Continuity Process (BCP) and Disaster Recovery (DR) to ensure uninterrupted service to the investors and the AMCs /in case of any disruptions / break-down / down time. An EOP shall comply with technology related requirements as prescribed in clause 9 the aforesaid SEBI Circular.
- Advertisement and Publicity: A EOP shall not advertise its business publicly unless permitted by AMFI / SEBI and shall abide by the advertisement guidelines issued by AMFI/ SEBI.
- Inducement of Investors: An EOP shall not rebate or pass-back the transaction fees to the investor and shall refrain from attracting investors through inducement of rebate or gifts / gift-vouchers or any such other means. An EOP shall not resort to unfair means of inducing investors from shifting from other EOPs to its platform.
- Net-worth: An EOP shall fulfil the net-worth criteria, as specified at all times.
- An EOP shall ensure that any change in its registration status (owing to any penal action taken by AMFI or otherwise) or any material change in its financials which may adversely affect the interests of investors, is promptly informed to the investors and any business remaining outstanding is transferred to another registered EOP in accordance with the instructions of the affected investors/ investors.
Obligations towards integrity of the Mutual Fund industry:
- An EOP and its employees shall observe high standards of integrity and consistently conduct their dealings in a manner to uphold the professional image of the Mutual Fund industry.
- An EOP shall refrain from making false or defamatory statements about any AMC, AMFI, Mutual Fund schemes or other EOPs and/or market intermediaries in any private or public forum (including chat groups, social media, print or electronic press, conferences etc.).
- An EOP shall maintain professional decorum, provide fair and balanced perspective and not participate in transmitting untrue statements or rumours so as to malign any AMC or Mutual Fund scheme or bring disrepute to any AMC, AMFI or the Mutual Fund industry. Any written or oral communication shall be based on verifiable facts and be presented in an unbiased manner so as not to mislead the public.
- Unfair trade practices: An EOP shall not indulge in any manipulative, fraudulent, deceptive or unfair trade practices or spread rumours with a view to distorting market equilibrium or making personal gains.
- Submission of Reports /returns: An EOP shall ensure timely submission of not neglect or fail or refuse to submit any required report or returns and not make any false or misleading statement on any report or returns which may be required to be submitted to the AMCs or AMFI.
With respect to advertisements on other websites/applications/portals/ media/channels, the Cat-1 EOPs shall ensure compliance with the advertisement code specified hereunder.
- As stated under Clause 10.1.1 of the SEBI circular dated June 13, 2023, the EOPs shall not display any advertisement regarding any Mutual Fund scheme on their platforms, nor display any proxy/surrogate/common brand related advertisement on their platforms.
As regards advertisements which any entity registered Cat-1 EOP wishes to publish regarding its EOP services on other websites/applications/portals/media/ channels, the Cat-1 EOP shall abide by the below mentioned Advertisements Code –
- The advertisement shall include all forms of communications issued by or on behalf of the Cat-1 EOP in any publicly available media that may influence investment/sale decisions of any investor/prospective investors, or decision of investor to avail services of the EOP including digital media, print media, television, radio, out-of-Home, cinema theatres etc.
The advertisement/promotional material shall contain:
- Relevant information regarding the EOP, which is accurate, true, fair, clear, complete, unambiguous and concise.
- Name of the Cat-1 EOP, registered office address, official website, email address, helpline number, and AMFI Registration number.
- Standard warning in legible fonts (minimum font size 10) stating that 'Mutual Fund Investment are subject to market risks, read all the related documents carefully before investing.' No addition or deletion of words shall be made to the standard warning.
- Advertisements in Vernacular Language shall contain Standard Warning as specified in clause (c) In the Vernacular Language. In audio-visual advertisements, the above-mentioned standard warning shall be accompanied by a voice over reiteration thereof in a clear and comprehendible manner for at least 5 seconds.
- In case of advertisement via SMS etc. wherein it may not be feasible to provide complete details, an hyperlink to the relevant webpage of the EOP containing all requisite details shall be provided in such SMS.
The advertisements shall not contain / use:
- Anything which is otherwise prohibited from being published under any legislation or regulations.
- Statements which are unwarranted, or exaggerated, or false, or misleading, or biased or deceptive, or based on assumptions/projections.
- Statements which directly or by implication or by omission may mislead the investor.
- Any customer testimonials and/or any celebrity endorsements.
- Any statement which is likely to be misunderstood/ mis-interpreted or likely to mislead or disguise the actual intended message.
- Any statement designed to exploit the lack of knowledge of un-informed or inexperienced investors.
- Any slogan or tagline which is exaggerated or unwarranted or inconsistent with or unrelated to the EOP.
- Any indicative returns or promise or guarantee of assured return to the general investors.
- Any statement which directly or indirectly discredits other EOPs or make unfair comparisons.
- Any representations about the performance or activities of the EOP unless accompanied by factual / verifiable data, disclosures of all the risk factors, etc. and disclaimer that "Such representations are not indicative of future results". Such disclaimer shall be in the same font as the rest of the advertisement.
- Any superlative terms, such as “The Best”, “No. 1”, “Market leader”, etc. unless such terms are provided by an entity independent of the EOP and its affiliates, and whose services are not procured by the EOP or any of its affiliates to assign such compliments to the EOP.
- Any celebrities in any advertisements regarding its EOP services.
Compliance and Other Requirements:
- Statistical information, charts, graphs, etc. whenever used, should invariably mention their source.
- Where advertising claims are expressly stated to be based on or supported by independent research or assessment, the source and date thereof should be mentioned in the advertisement.
- In the event of suspension of the Cat-1 EOP by AMFI, such EOP shall not issue any advertisement either by itself or jointly with any EOP during the period of suspension.
- In the event of any proceeding/action initiated against an EOP by a regulatory body, AMFI reserves the right to direct the EOP to refrain from issuing any advertisement for such a period as AMFI may deem fit / appropriate.
- The EOP shall not involve/engage in games/leagues/schemes/campaigns/ competitions etc. which may involve distribution of prize monies/medals/gifts, etc.
- These guidelines shall be applicable to any other investment/consultancy agencies associated with the EOP concerned and issuing advertisement wherein the EOP has been named in the advertisement.
- Cat-1 EOPs not complying with this Advertisement Code are liable to face disciplinary action which may include suspension or permanent cancellation of AMFI Registration.
In addition to displaying the factual information pertaining to Mutual Funds in a user-friendly manner as stipulated under clause 10.4.1 (a) in Annexure A of the SEBI Circular, the EOP shall ensure to provide the links of the website of the AMCs to enable the investor to seek any additional information about the scheme.
Category 1 EOP, the entity shall comply with the disclosure requirements as specified in clause 10 of the Annexure A of the SEBI Circular.
Category 1 EOPs shall keep and maintain the books of account, records and documents specified below :
The Category 1 EOPs shall maintain the following books of account, documents and records:
- Details of investor wise transactions, including time of request for subscription and redemption.
- Details of failed transactions, if any and the reasons thereof.
- Documents / records pertaining to on-boarding of investors.
- Documents/records pertaining to non-financial transactions including cancelled cheque leaves, OTP logs etc.
The Category 1 EOP shall ensure that IT logs of the Investor are captured for all electronic transactions. The consents given electronically by the Investor shall also be captured and stored as a record by the EOP. All transactions provided by the EOP to the RTA shall be accompanied with the IP address of the Investor for transaction.
The records are to be preserved as per the SEBI guidelines applicable to Mutual Funds, which is currently 8 years.
Category 1 EOPs shall ensure compliance with provisions of the SEBI Circular and ensure compliance with all applicable laws including regulations, circulars and guidelines issued by SEBI and guidelines issued by AMFI from time to time.