In a bid to safeguard the interest of mutual fund investors, capital market regulator Securities and Exchange Board of India (SEBI) on Thursday imposed a ban on ‘intermediate pooling’ of funds and units by mutual fund distributors, investment advisers, and other entities. The new rule, effective from April 1, will not be applicable for SEBI-registered portfolio managers.
The decision to ban intermediate pooling of funds was taken in consultation with the representatives from the Association of Mutual Funds in India (AMFI) on the same. The action was taken in wake of increasing reports of investors being defrauded by fraudulent money pooling schemes.
“SEBI, vide circular dated October 4, 2021 discontinued intermediate pooling of funds and/or units in Mutual Fund transactions by stock brokers / clearing members on Stock Exchange platforms and by other entities including online platforms, respectively. The provisions of the said Circulars were to come into effect from April 01, 2022,” the regulator notified on Thursday.
Meanwhile, the SEBI has extended the deadline for discontinuation of usage of pool accounts for transactions in the units of mutual funds, other processes including third party verification (TPV), two-factor authentication (2FA), and verification of key investor details as applicable to stock brokers/clearing members, and other entities operating online. The ban on such activities were proposed to be implemented from April 1, 2022, however, it will now be extended to July 1, 2022.
“On or after July 01, 2022, new mandates shall be accepted only in favour of SEBI recognized Clearing Corporations and those mandates shall exclusively be for subscriptions to units of Mutual Fund schemes and not for any other purpose,” SEBI said.
The market regulator has directed asset management companies (AMCs), recognised stock exchanges, depositories, recognised clearing corporations and registrars to an issue and share transfer agents to take necessary steps for implementing the new rules.
“Stock Exchanges and Depositories are directed to bring the provisions of this circular to the notice of their members / participants, disseminate the same on their websites and ensure strict adherence to the timelines,” it said.
In October last year, the SEBI had said that stock brokers and clearing members should not accept payment through one-time mandate or issuance of mandates or instruments in their name for mutual fund transactions. The regulator had observed that based on a bilateral understanding with AMCs, a few platforms pool the clients’ funds into a nodal account and subsequently transfer to AMCs either on per transaction basis or lump sum basis.
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