With no consensus emerging on regulation of all financial and investment advisors by a single regulator, the Securities and Exchange Board of India may soon start regulating investment advisors and mutual fund distributors in the securities market.
The Sebi is likely to regulate them through a private sector self-financing regulatory organisation.
Sources said the government and the Sebi had agreed that the market regulator would start the process of registering and regulating investment advisors and distributors in the securities market.
"The Sebi board will consider this issue at its next meeting slated on October 25," a source said.
The Sebi has expressed concerns that unregulated advisors may have some hidden agenda behind giving certain advice, which could be detrimental to the investors' interest.
Advisors will be required to disclose benefits, if any, when they give advices. This is particularly important when the advisor and the distributor are the same person.
When registering with the Sebi, advisors might have to give an undertaking to the regulator that they would follow fair practices in other advisory functions not regulated by the Sebi, the sources said.
As there are no standalone advisors, the same set of advisors and distributors provide all kind of investment and financial advisories such as securities, banking, insurance and pension products. So they come under various regulators such as the Sebi, the Reserve Bank of India and the Insurance Regulatory and Development Authority.
For effective regulation, there should be a single regulator for investment and financial advice. But a consensus is yet to emerge among all the regulators concerned. The ideal view is that the Sebi should regulate all kinds of financial and investment advisors.
To start with, the Sebi will regulate the functions of advisors related to the security market. The umbrella may be broadened if there is a consensus that the Sebi should be the sole regulator of all financial advisory functions as well.
