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This article was first published 13 years ago  » Business » Strict norms for wealth management advisors soon

Strict norms for wealth management advisors soon

Source: PTI
January 18, 2011 15:58 IST
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The government is pooling in its regulatory resources to frame a comprehensive rule-book for wealth management advisors and has sought inputs for the same from RBI, Sebi and other financial sector regulators.

The move follows an estimated Rs 400-crore (Rs 4 billion) fraud allegedly perpetuated by a relationship manager at a Gurgaon branch of Citibank and initial probe into the matter pointing towards various loopholes in existing regulations.

Besides RBI and Sebi, other financial sector regulators, namely commodity regulator FMC, insurance watchdog IRDA and pension fund regulator PFRDA, will also be roped in to formulate the all-encompassing wealth management guidelines.

After their initial probe into the Citibank case, banking regulator RBI and capital market watchdog Sebi have felt the need for stricter regulations for wealth management advisors, given the huge surge in the size of assets managed by them.

Although there are no official figures for it, the size of wealth management industry is pegged at about $1 trillion -- nearly double the size a couple of years ago.

Sources said that the existing practices and regulations for wealth management space from all the regulators will be collated to frame the final guidelines and an announcement to this effect could be made in the Parliament during annual Union Budget presentation next month.

The issue is likely to be discussed in the next meeting of the newly constituted Financial Stability and Development Council (FSDC), a high-level body authorised to deliberate on inter-regulatory coordination matters, sources said.

The first meeting of FSDC was held late last month and was attended by the Finance Minister as also chiefs of RBI, Sebi and IRDA among others. Wealth managers, who mostly act as investment advisors for HNIs, are currently regulated by different regulators as per the sectors in which they are offering their services.

However, there are no comprehensive rules to regulate the wealth managers for services across various sectors such as banking, markets, insurance, commodity and pension funds.

After the Harshad Mehta scam in 1992, RBI banned banks' portfolio management services. Since then, banks are limiting their wealth management business to advising their wealthy clients without taking custody of the capital or assets.
RBI has now asked banks about their wealth management practices and whether they or their relationship managers get the Power of Attorney from the clients, sources said.

Sebi does not allow brokers to insist on PoAs from their clients and might suggest the same for bankers and others. As such, the portfolio management services in the capital market are regulated by Sebi, but these regulations do not cover asset classes such as fixed deposits and other banking products, insurance, commodity and pension funds.

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