The Securities Appellate Tribunal (SAT) on Wednesday asked Sebi to give a detailed reply to an appeal filed by the Financial Planning Supervisory Foundation (FPSF) on the in-principle nod given to Amfi-promoted Institution of Mutual Funds Intermediaries (Imfi) to set up a self-regulatory organisation (SRO) for MF distributors.
The Securities Exchange Board of India (Sebi) will have to reply by mid-June; the final SAT hearing is scheduled for July 1. In February, Sebi gave an in-principle approval to Imfi to set up an SRO for distributors.
The Organisation of Financial Distributors (OFD), floated by Financial Intermediaries Association of India (FIAI) and FPSF, promoted by Financial Planning Standards Board of India (FPSB), were the other two SRO applicants.
The appeal states that Imfi was incorporated on August 2, 2013, implying that Sebi had granted in-principle approval for acting as an SRO to a phantom applicant, which was not a legal person at the time of application, in direct and clear violation of the Sebi SRO Regulations and of common law principles and jurisprudence relating to incorporation creating a legal person.
The appeal points out that under Regulation 4(a) of the Sebi SRO Regulations, for a valid application to be made for recognition of SRO, the applicant must be a company and the company must have a licence under Section 25 of the Companies Act, 1956.
The MF industry is divided over the appointment of Imfi as SRO. Several fund houses support Imfis candidature for SRO as Amfi has been around for more than a decade and has worked closely with fund houses and distributors.
However, some experts have expressed reservations. Amfi is an industry body put together by the manufacturers. How can they regulate the distributors? The very term self-regulation suggests that someone from the distributor community should take up the responsibility of being an SRO, Deepak Chatterjee, former CEO of SBI MF, had told FE earlier.