– By Anu Tiwari and Karthik Narayan
India’s asset and wealth management (AMC/ WM) space recently crossed USD 730 billion of AUM, which is more than 80% annual increase over 5 years given increasing retail participation, and seen new entrants, Indian and global. SEBI’s Chairperson remarked that one out of three investment advisers are unregistered and record penalties being imposed by SEBI against unlicensed and deviant players.
Regulators such as SEBI, RBI, Tax, IRDAI who have historically operated in their own fields, are increasingly collaborating, e.g. recent data sharing between the RBI and SEBI, as noted in RBI’s Press Release of March 5, 2024. Stock-exchanges act as ‘first regulators’ and are increasingly involved with market surveillance, with SEBI on July 16, 2024 proposing summary proceedings by stock-exchanges for minor/ technical violations.
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Given current trends and market shifts, in the coming decade we are likely to see more activism by fund managers. Globally, AMC/ WM players have been vocal ‘voters’, often questioning company decisions on governance, board composition, valuation, M&A and capital allocation. With Indian domestic financial institutions growing stronger, we may see more active shareholder votes, minority protests and even business or governance proposals tabled by AMC/ WM players for their portfolio companies.
The regulator is also focused on narrowing the scope between portfolio management services (PMS) and mutual funds (MFs). MFs are perceived as low-risk and PMS high-risk, with higher entry barriers – minimum INR 5 million ticket size. Retail investors are increasingly preferring riskier asset classes and advisory models, including derivatives, algos, unlicensed advisors, finfluencers, etc. India’s F&O segment hit record turnover of USD 1.1 trillion in March 2024 compared to USD 27 billion in March 2019. On July 16, 2024, SEBI proposed a new asset class, with minimum INR 1 million ticket size, to sit between MFs and PMS. In the future one may see a graded approach to investor risk.
FinTechs, virtual digital asset players entering WM and the rise of fin-fluencers have required regulators to revisit extant rules. New wealth-tech models are often unlicensed and housed overseas, who advertise aggressively through social media – ingredients for retail investors to lose money. New licensing frameworks such as SEBI’s bond platform regulations, pricing regulation for discount brokerages and action against finfluencers is likely to increase.
M&A and IPO activity is also likely to increase and drive India’s AMC/ WM landscape. SEBI’s ‘sponsor’ rule relaxation for MFs in 2023, permitting private funds to ‘sponsor’ MFs, is a welcome change. The stringent ‘change in control’ rules in the AMC/ WM space were designed for strategic players of a time where listed AMCs/ WMs were few.
To make most of future opportunities, stakeholders may have to come to terms with the fact that SEBI’s rulemaking in this space has been dynamic with several changes proposed and effected. Trends suggest that compliance herein needs significant investment and scaling up.
Presently, SEBI prescribes various subjective standards to AMCs, WMs and market intermediaries around ‘duty of care’, due-diligence, ‘client interest and suitability’, and investment decision-making leading to penalty exposure for ‘bad investments’. SEBI’s recent proposal for ‘Industry Standards’ of compliance is a welcome step.
(Anu Tiwari is a Partner (Head – Fintech and Financial Services Regulatory); and Karthik Narayan is a Senior Associate at Cyril Amarchand Mangaldas.)
(Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.)
From: financialexpress
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