The Securities and Exchange Board of India , along with the Reserve Bank of India and the government of India, is working on new rules to regulate the flourishing wealth management business, a senior official from Sebi said on Friday.
The wealth management industry, estimated to be at $1 trillion, offers investors a range of financial products across different asset classes cutting across regulatory turfs. "We need to integrate with regulators not just at the policy level but at the operating and surveillance level as well," said KN Vaidyanathan, executive director of the investment management department in the Securities and Exchange Board of India.
"Markets are far too advanced, the wealth managers of today straddle products which cut through banking, capital markets and insurance regulatory framework. We can't remain silent. We need to come together, better address how to regulate wealth managers. That process is in progress and we will come out with it soon," he said.
To address these kinds of inter-regulatory challenges, the government has recently formed the Financial Stability and Development Council (FSDC) that serves as an interface between all the financial sector regulators.
Regulators have already met a couple of times at this common forum, which is chaired by the finance minister since it was set up last year.
Mr Vaidyanathan said from an investor's standpoint, the risk in the wealth management business is the relationship manager. "His remuneration is not fully aligned with investor interest," he said.
"The institution guards its risk by getting certain documents from the customer, so the risk of the relationship manager is actually borne by the customer," he said.
Adding that one of the challenges facing regulators is the cost of non-compliance as a lot of people want light-touch and tissue-paper-thin regulation.
"People will respect when there is a fear of non-compliance. Till the time you establish that cost of non-compliance clearly in the system, you can't afford to be a light-touch regulator. But there is a risk in this non-compliance and I must say it is tempting to confuse socialism with capitalism."
Sebi will soon come out with the guidelines to allow foreign nationals to invest in domestic mutual funds.
"We are in the process of working on it with RBI and the finance ministry. Hopefully, we will soon come out with those guidelines. I would say it is a matter of weeks not months," Mr Vaidyanathan said.
"The next set of liberalisation will be allowing any foreign national who complies with know-your-client norms. So if you want to grow the asset management industry in the country, you need to give them an opportunity to manage different stakeholders.
"What we are saying is that you need to make sure you don't dilute any of those while implementing this proposal," he said.
Finance Minister Pranab Mukherjee had proposed this decision last month while presenting the Budget. At present, only FIIs and sub-accounts registered with Sebi and non-resident Indians are allowed to invest in domestic mutual fund schemes.
The Indian mutual fund industry manages assets worth 7.07 lakh crore.
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