Mutual funds hold trail commissions for folios without KYC compliance

mutual funds, MFTwo large-sized mutual funds — Reliance MF and ICICI Prudential MF — have decided to withheld last month’s distributor commissions for those folios where the KYC-compliance is not complete. The MFs have sent the communication to distributors following a recent audit by the Securities and Exchange Board (Sebi).According to a communication by Reliance MF, a copy of which is with Business Standard, “… based on recent Sebi advise for investors where PAN/KYC is not available, we have kept your trail commission (if any) on hold for such folios,” the fund house told its distributors.Reliance MF added the trail commission will be paid out once the necessary changes are made.ICICI Prudential MF told distributors that it would hold commissions for folios where the address details and pin code were incorrect or incomplete. In its communication, the fund house said investors can submit complete address by submitting the KYC form along with supporting documents.According to people in the know, more fund houses could also hold back trail commissions for folios where KYC-compliance is not complete.In a recent letter to heads of asset management companies, Sebi had taken adverse view of 25 violations following inspection of fund houses between April 2014 and March 2016. The regulator warned the asset management companies against these practises and demanded corrective action.ALSO READ: Are mutual funds now less inclined to be activists?One of the practises highlighted by the regulator was paying of trail commissions before KYC is complete in all respects.As reported earlier by Business Standard, certain players in the industry had recently written to Sebi, requesting a formal circular on the maximum commission to be paid to mutual fund distributors, so that there is no regulatory grey area that can get exploited by any entity.On Wednesday, Sebi officials met officials of the industry body Association of Mutual Funds of India (Amfi) and informed them that the regulator was aware of cases of excessive commissions being paid out; much in excess of Amfi’s ‘best-practices’ guidelines.
Source: Business Standard