MFs refuse trail commissions over KYC norms
Three mutual funds (MFs) — Reliance MF, ICICI Prudential MF and Invesco MF — have decided to withhold last month’s trail commissions to distributors for the folios where the KYC-compliance is not complete.
The MFs have sent the communication to distributors following a recent inspection report by the Securities and Exchange Board of India (Sebi) where it highlighted 25 violations and demanded corrective actions.
According to a communication by Reliance MF to distributors, a copy of which is with Business Standard, “... based on recent Sebi advice for investors where PAN/KYC is not available, we have kept your trail commission (if any) on hold for such folios.”
Reliance MF said the trail commission would be paid once the necessary changes were made.
ICICI Prudential MF told distributors it would hold commissions for folios where the address details and PIN code were incorrect or incomplete. In its communication, the fund house said investors could submit the complete address by submitting the KYC form along with supporting documents.
Invesco MF cited Sebi letter in its communication saying “…distributors need to ensure KYC documents are complete in all respects, failing which AMC (Asset Management Company) should withhold its commission to such distributors. We request you to complete KYC documentation for all your investors to ensure timely release of commission payments.”
According to people in the know, more fund houses could hold back trail commissions for folios where KYC-compliance is not complete.
Query sent to the above three fund houses did not elicit any response.
Distributors demanded they be given more time. “Sebi and Amfi (Association of Mutual Funds in India) should have given a few months to distributors to complete all the KYC details of their clients. The responsibility for KYC-compliance is not of distributors alone, but AMCs and registrars are equally responsible. Why should only distributors be penalised?” said Srikanth Matrubai, chief executive officer of SriKavi Wealth.
In its letter to heads of AMCs, the market watchdog had taken adverse view of certain violations it found in its inspection of fund houses between April 2014 and March 2016.
One of the practices highlighted by the regulator was paying of trail commissions before KYC is complete in all respects.
Some players in the industry have written to Sebi, requesting a formal circular on the maximum commission that can be paid to mutual fund distributors so that there is no regulatory grey area that can get exploited by any entity.
On Wednesday, Sebi officials met Amfi’s and informed them that the regulator was aware of cases of excessive commissions being paid, which were much higher than Amfi’s ‘ best-practices’ guidelines.