Sebi proposes consultation paper to regulate online MF platforms

The consultation paper lays out the framework for online platforms that provide ‘execution-only’ services in direct plans of MFs and are neither brokers, Sebi registered investment advisors or mutual fund distributors.

The paper proposed three frameworks to regulate entities that want to provide execution-only services in direct plans: such entities may be mandated to act as a registered intermediary, an entity registered with The Association of Mutual Funds in India (AMFI) or an entity with limited purpose membership with stock exchanges.

Currently, there is no framework for digital platforms, which includes platforms provided by investment advisors or stockbrokers to investors who are not their clients, to provide execution-only services in direct plans of MF schemes and obtain data feeds with respect to such transactions.

“The risk associated with such transactions cannot be overlooked as the non-clients do not have recourse or protection available under any regulatory framework. Thus, there is a need to strike balance between the convenience and investor protection,” Sebi said in the consultation paper.

The regulator may even set eligibility criteria or conditions for registration, the paper said. “Irrespective of the regulatory approach adopted for the regulation of EOPs, adequate infrastructure to provide financial and non-financial services shall be a pre-requisite for an EOP as the same indicates seriousness of intent in setting up the business and also inspires confidence. As the investors would be relying on EOPs to execute Mutual Fund transactions, in order to ensure 6 continuity and provide assurance to investors that the entity is equipped in all respects, it is felt that EOPs need to be adequately capitalized in addition to other infrastructure requirements.”

Depending on the framework that is adopted, entities will also be required to set up a grievance redressal mechanism.

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