SEBI mulls SRO for investment advisers

Mains Paper 3 : Mobilization Of Resources |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : SRO and its mandate

Mains level : Regulation of capital markets in India


News

  • The SEBI has proposed a self regulatory organisation (SRO) for the growing number of investment advisers to address issues related to the quality of advice given to investors by such entities.

What is Self Regulatory Organisation?

  • An SRO is the first-level regulator that performs the crucial task of regulating intermediaries representing a particular segment of securities market on behalf of the regulator.
  • An SRO would be seen as an extension of the regulatory authority of the SEBI and would perform the tasks delegated to it by the SEBI.
  • The role of an SRO is developmental, regulatory, related to grievance redressal and dispute resolution as well as taking disciplinary actions.

Why need SRO?

  • SEBI is in receipt of a large number of complaints alleging charging of exorbitant fees, assurance of returns, misconduct etc. by investment advisers.
  • Incidentally SEBI has said that there was a need for an SRO for mutual fund distributors — that currently register with Association of Mutual Funds in India (AMFI).
  • It was aimed to bring in consistency in industry practices and also to take disciplinary action against alleged malpractices such as mis-selling of products and churning of portfolio.

Expected functions

  • SEBI has proposed the strengthening of the existing regulatory framework for SROs by introducing features such as a governing board with public interest directors and a clear policy for arbitration and dispute resolution.
  • The regulator has proposed a governing board with at least 50% public interest directors along with 25% representation each of shareholder directors and elected representatives.
  • Further, the governing board can appoint a managing director or chief executive officer to manage the daily affairs of the SRO.
Capital Markets: Challenges and Developments
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