NO EXTERNAL AUDIT FOR FUND DISTRIBUTORS, INDEPENDENT AGENTS, SAYS SEBIMarket reg

NO EXTERNAL AUDIT FOR FUND DISTRIBUTORS, INDEPENDENT AGENTS, SAYS SEBIMarket regulator Sebi has shot down a suggestion by asset management companies to appoint an external agency to audit distributors and independent financial advisors ( IFAs). Distributors are unhappy with this decision as they will have to show their books and operational blueprints to every fund house, whose products they sell. Sebi, in its August 22 circular, had asked fund houses to conduct a due diligence process on 500-odd top distributors and independent financial advisors (IFAs) across the country. Fund houses, through their industry body AMFI, had requested Sebi to allow them to appoint an external consultant to conduct the audit on their behalf due to protests from distributors. Also, fund houses found the process cumbersome. The regulator, however, scrapped the idea and clarified directly to fund houses that they will have to do diligence on distributors. "This will cause a lot of problems for us... We'll have to open our books and processes to all fund houses whose schemes we sold. We'll have to oblige a fund house even if we've only sold one scheme to one investor," said a Mumbaibased distributor. Sebi has asked fund houses to audit the 530-odd distributors based on a few parameters. Distributors with presence across 20 locations, or those who have received fees over Rs 1 crore or the ones who have got commission in excess of Rs 50 lakh from one mutual fund will be audited. Institutional distributors who have raised Rs 100 crore in assets will also come under the scrutiny. "This is an attempt to make mutual funds directly responsible for distributors," said the CEO of a leading fund house. Mutual funds' audit teams will mainly look into the revenues and regulatory records of these distributors. Fund houses are also supposed to review associate and subsidiary businesses of distributors. "We don't have the expertise to audit large firms like the ICICI Group, which has three verticals selling funds," said another chief executive of a private fund house. "A business consultant would have done a better job than us. We'll at the most be able to mail a questionnaire to distributors and get it answered. It'll not serve any purpose. This is kind of a retrograde step taken by the regulator," the chief executive said. Smaller fund houses are apprehensive of this move as they feel distributors will stop their selling funds. "Considering the audit trouble, distributors will stop selling funds of smaller asset management companies. It'll not make any difference to them as smaller fund houses generate very low revenues for them. It'll not be worth their trouble to sell our funds," the marketing head of newlylaunched fund house said. – www.economictimes.indiatimes.com