India FinTech Forum organised FinTech Policy Roundtable at Rainmatter (an R&D fintech incubator founded by Zerodha) in Bangalore on 7th February 2017. The objective of this roundtable was to focus on regulatory steps required to ease mutual fund distribution. It was attended by CXOs of various robo-advisory startups and related fintech firms based in Bangalore who shared their views on “Consultation Paper on Amendments/Clarifications to the SEBI (Investment Advisers) Regulations, 2013”.
The investment space is expected to see significant disruptions with robo-advisors, algorithmic trading etc. Also interesting technology developments like Aadhar-based eKYC, UPI, eNACH will change the way the wealth management services are offered. Hence, it is important to make sure that the correct regulatory framework is in place to foster innovative solutions using the latest technologies.
Highlights of FinTech Policy Roundtable
Some of the key points discussed at the FinTech Policy Roundtable are:
Implementation of C-KYC needs to be streamlined and integrated with Aadhar-based eKYC.
- As a KYC-compliant bank account is used for MF operations, the entire KYC process for MFs can be phased out.
- Digital signatures based on Aadhar OTP should be sufficient for C-KYC.
- “Consent Management” framework is required in addition to simplifying KYC process.
- It is impractical to separate out the role of advisory and distribution. At this stage, the market penetration of MFs in India is too low to remove distribution like some Western countries.
- Separate regulations are required to encourage innovation by robo-advisors and cannot be clubbed with regular IFAs/RIAs. The capital requirement for RIA firms needs to be lowered and compliance burden reduced for fintech startups to enter and remain sustainable in the wealth management space.
- Distribution commissions must be standardized (e.g. max @1%) to prevent conflict-of-interest.
- Number of MF schemes (including the ones with minor variations) need to be reduced. Standardized names of schemes will reduce confusion in the minds of investors.
- New investor onboarding costs are significantly high and more complex regulations only add to these costs. Compliance requirements related to onboarding must be made easier by removing the requirement for IPV and wet signatures.
- RIA performance is a derived metrics, while AMCs need to be more accountable for scheme performance. AMC fund managers must be made accountable for fund performance, with no performance clause on RIAs.
- A gradual shift to quality advisory is required. Market forces must be allowed to decide the price of such services. Distribution can co-exist with RIAs within the current regulatory framework (especially for low ticket investments needed for true financial inclusion).
If you have any views on the above list, please feel free to post your comments below.