CLARIFICATION : Mutual Fund Distributors are very much subject to /come under the purview of SEBI Mutual Fund Regulations.
Recently an article was published in
the digital media titled ‘Mutual funds distributors outside the purview of our
The above caption gives a misleading
perception that Mutual Funds Distributors are not subject to any SEBI regulations,
which is absolutely incorrect.
The article has also
picked and chosen the statements given by the SEBI Chairperson selectively
which has led to scope for mis-interpretation of her statements.
It is therefore hereby clarified that Mutual
Funds Distributors (MFDs), are very much governed by the SEBI Mutual Fund Regulations,
1996 (“the Regulations”) and the
circulars / directives issued thereunder, as explained below –
- Responsibilities of acts of commission or omission by the person whose service have been procured by the Asset Management Company are cast upon the Asset Management Company under Regulation 25(3) of SEBI Mutual Fund Regulations.
- Code of Conduct for Mutual Funds are laid down by SEBI in the Regulations and SEBI has clarified in its circular MFD/CIR No.10/310/01 dated September 25, 2001 that all Mutual Funds shall direct their agents/distributors to follow the provisions of SEBI Regulations and Guidelines pertaining to Mutual Funds with specific focus on Regulations/guidelines on advertisements/sales literature and code of conduct. Mutual Funds have also been directed by SEBI to monitor the activities of their agents/distributors so they may not indulge in any kind of malpractice or unethical practice while selling/marketing mutual funds units.
- This has been further emphasized in SEBI Circular No. MFD/CIR/ 06/210/2002 dated June 26, 2002 and also circular no. SEBI / IMD / CIR No. 8 / 174648 / 2009 dated August 27, 2009, requiring the MFDs to abide by the 'Code of Conduct for Mutual Fund Intermediaries' prescribed by AMFI.
- As per SEBI circular no. MFD/CIR/20/23230/2002 dated November 28, 2002, all intermediaries engaged in selling and marketing of mutual funds units need to be mandatorily registered with AMFI, subject to the person passing of the prescribed certification examination and adherence to guidelines as specified by SEBI and AMFI from time to time.
- The revised code of conduct for Mutual Funds Distributors dated April 07, 2022, which is available on AMFI website, requires Mutual Fund Distributors to demonstrate the core values of being a fiduciary by establishing professional standards in their dealings with the investors, AMCs, and other distributors so as to exemplify the values of transparency, competency, fairness, integrity and thereby seek to inspire and maintain trustworthiness in the profession of distribution of Mutual Fund schemes. The above referred revised Code of Conduct has been duly deliberated by Mutual Funds Advisory Committee of SEBI and reviewed by SEBI.
- The aforesaid SEBI circulars have clearly stipulated that the AMCs shall monitor the activities of their agents/distributors to ensure that they do not indulge in any kind of malpractice or unethical practice while selling/marketing mutual funds units; and shall not deal with those intermediaries who did not follow the code of conduct.
- Further, AMFI had also issued specific guidelines to its members advising the AMCs to ensure compliance thereof by their empaneled MFDs as well as their sub-distributors, vide AMFI circular dated 15-Jan-2003.
- In addition, AMFI's Standing Committee on Certified Distributors ("ARN Committee") which is headed by a Member of AMFI Board, looks into investor complaints against MFDs especially cases involving breach of code of conduct by MFDs or their employees; and based on the ARN committee's recommendations, AMFI has been taking appropriate disciplinary action against the errant MFDs / EUIN holders ranging from reprimand/warning OR temporary suspension of ARN / deactivation of ARN OR cancellation of ARN/EUIN and permanent debarment from doing mutual distribution business (by blocking the PAN of the person so that she/he will not be able to obtain fresh registration in any capacity).
- Thus, it can be clearly seen that the mutual fund distributors are very much subject to / under the purview of SEBI Mutual Fund Regulations and their activities are monitored by the AMCs as well as at AMFI level, contrary to what has been conveyed in the aforesaid article.