Inter-regulatory panel to frame rules for financial advisers

Reinforcing the stand to regulate financial advisers, a high-level inter-regulatory co-ordination group...

Reinforcing the stand to regulate financial advisers, a high-level inter-regulatory co-ordination group has been set up last week to put in place minimum education and regulatory standards for financial advisers. The group will comprise of officials from the Insurance Regulatory and Development Authority (Irda), Securities and Exchange Board of India (Sebi) and Reserve Bank of India (RBI), and will be headed by Irda chairman C S Rao.

The group has been set up as a response to the draft guidelines on investment advisers released by Sebi on October 10, in which it proposed a system that revolved around a self-regulatory organisation (SRO). However, Sebi’s jurisdiction is restricted only to ‘securities’, excluding the advisery spaces in the banking and insurance sectors. “We are aware of the multi-sector nature of the role of investment advisers. Unfortunately, at present, no one regulator can write regulations, covering all activities of investment advisers. Hence, what we propose to do is go ahead and get Sebi to do what it needs to do,” an official from ministry of finance said.

One of the issues facing the group is whether to have a single regulator. Said Rao: “We will be looking at advisers of financial sector as a whole. The idea is to have an overarching system to regulate all advisers.” The committee plans to define broad guidelines for investment advisers, after which all regulators will licence them. “Advisers, who qualify under these guidelines, will then be licenced separately from each regulator,” he added.

On what these regulations and guidelines will be, Rao said it was too early to comment. “The committee was set up a week back, and I am yet to finalise representatives from the regulators. In about two to three weeks, we will come out with a paper chalking broad directions on the viability of having one regulator,” said Rao.

Currently, the term financial adviser is very loose and is misused, as there are no guidelines and qualifications for the same. Anybody can become a financial adviser, which is a cause for concern for the industry. Even for customers, it is a serious problem, as advisers can’t be held accountable. Said Surya Bhatia, Delhi-based financial planner: “We have a code of ethics, but no regulations. For accountability, you need a set of defined rules which is missing.”