RBI and Sebi to implement guidelines for wealth management industry

Reserve Bank of India and capital markets watch dog Securities Exchange Board of India are likely to implement new guidelines for the $1-trillion wealth management industry. The regulators would likely take up the implementation of the regulations on a joint basis. They will also keep an eye on violations.

No specific regulations for wealth management for high net-worth individuals (HNIs) have been framed as yet and they come under norms for portfolio management by the Sebi. Currently they are being regulated by various regulators as per the sectors in which they are offering their services and according to an official, there are no comprehensive rules to regulate the wealth managers for services across various sectors, such as banking, markets, insurance, commodity and pension funds.

The government has pooled in its various regulatory resourcesand the government has framed a comprehensive rule-book for wealth management practices. Inputs towards these were sought from RBI, Sebi and other financial sector regulators.

The first meeting of the sub-committee of the Financial Stability Development Council (FSDC) which met in Mumbai last week deliberated the issue of wealth management and private banking practices adopted by banks following the Rs350-crore fraud committed by a Citibank employee.
 
According to the RBI, the committee deliberated on regulatory issues relating to wealth management/private banking undertaken by banks. Select banks had been asked to share details of their wealth management businesses. They were asked to state their policy, procedures and size of wealth management business.
 
Sebi has also highlighted the need to take up joint efforts and to improve coordination both at the opertional as also the surveillance level, between different regulatory agencies to protect the interests of investors in an increasingly complex world of financial products. According to Sebi executive director KN Vaidhyanathan, who heads the investment management department that oversees foreign institutional investors and mutual funds at Sebi, the watchdog could not remain silent and needed to address the ways the wealth management sector which straddles across different jurisdictions, could be regulated. 
 
He sadi the markets were far too advanced now. He added the wealth managers straddled across products that cut through banking, capital markets and insurance regulatory frameworks. 
 
He said Sebi needed to integrate across regulators, not just at the policy level, but at operating and surveillance levels too.
 
The strong push for coordination and firmer control on these new areas of the financial system assume critical importance agaisnt the backdrop of the Rs350-crore wealth management fraud at the Gurgaon branch of Citibank. A Citibank relationship manager at allegedly used fraudulent documents to lure high networth individuals and companies such as the privately held Hero Investments, an arm of the country's largest two-wheeler maker.
 
According to Vaidhyanathan the risk in the wealth management business lies with the relationship manager, as his remuneration is not completely aligned with the interest of the customer.