SEBI asks mutual fund houses to pay withheld commissions to distributors by May 21

SEBI asks mutual fund houses to pay withheld commissions to distributors by May 21

New Delhi, Mar 26: The Securities and Exchange Board of India (SEBI) has asked mutual fund houses to pay the withheld commission of distributors within three months beginning from February 21.
“Our commissions were held back due to certain reasons. SEBI has given time to AMCs to pay our withheld commission within three months, that is, from February 21, 2019-May 21,2019,” a Mumbai-based distributor said. The distributor’s payment had been withheld by asset management companies.
According to him and his peers, the fund houses had withheld payments, including for upfront commission for sales recorded before October 22, 2018 due to factors like delay in claw back, pending of ARN (AMFI Registered Number) renewals and incomplete KYC of folios.
SEBI direction
SEBI, in its circular on October 22, had asked AMCs to adopt full trail model of commission in all schemes, and stop paying upfront commissions to distributors.
Mutual fund lobby Association of Mutual Funds in India (AMFI) had later requested SEBI to clarify and exempt its members from some of the provisions of the circular.
In its reply to AMFI, the market regulator had on February 21, directed the fund houses to release the withheld commission for sales that happened before October 22, within three months subject to fulfilling all the requirements.
Withheld commission
A CEO of a fund house, on condition of anonymity, said that it had withheld commission due to a number of reasons such as failed transaction, and incomplete KYC.
He further said that fund houses will not pay withheld commission after May 21, 2019 and so, distributors will have to claim their commissions within the stipulated time that is provided by SEBI.
A slew of mutual funds had held back commissions for folios where the address details and pin code were incorrect, or incomplete.
Last year in June, SEBI had released an inspection report where it highlighted 25 violations by AMCs and had demanded corrective actions.
“SEBI in its letter dated July 9, 2018, to AMFI had communicated that distributors need to ensure KYC documents are complete, failing which AMC should withhold its commission to such distributors. We request you to complete KYC documentation for all your investors to ensure timely release of commission payments,” the regulator had then said.
One of the practices highlighted by the regulator was paying of trail commissions before KYC is complete in all respects.