SEBI Discontinues usage of pool accounts including online platforms other than stock exchanges for transactions in units of Mutual Funds

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The Market Regulator, Securities and Exchange Board of India (SEBI) on Monday issued the circular on Mutual Funds wherein it notified the discontinuation of usage of pool accounts by entities including online platforms other than stock exchanges for transactions in the units of Mutual Funds.

Based on the discussions with stakeholders and recommendations of the Mutual Fund Advisory Committee of SEBI it has been decided with respect to transactions in the units of Mutual Funds undertaken through service providers/platforms other than stock exchanges that AMCs shall ensure that the transactions (financial/ non-financial) can be executed only if there is a service agreement between the AMC and the service provider / platform. Further, AMCs shall ensure that intermediate pooling of funds and/or units in any manner by MFDs, IAs, MFU, channel partners or any other service providers/ platforms, by whatever name called, are discontinued for MF transactions. However, this requirement shall not apply to the SEBI registered Portfolio Managers subject to compliance with SEBI (Portfolio Managers) Regulations, 2020 and circulars issued thereunder.

AMFI, in consultation with SEBI, shall issue guidelines for AMCs with regard to mitigating risks of co-mingling of funds at the level of Payment Aggregators/Payment Gateways involved in mutual fund transactions. It shall be mandatory for all AMCs to follow such guidelines.

The SEBI notified that for mitigation of the risk of third party payments the onus of compliance with PMLA provisions and not permitting usage of third party bank account payments continues to lie with the AMCs.

In order to ensure that the folio and source bank account belong to the same person, AMCs shall make sure that payment for MF transactions are accepted through only such modes where independent traceability of end investor can be ensured and source account details are available as audit trail without relying on any other intermediary’s records. However, the investment in MF by way of cash/ through e-wallets (Prepaid Payment Instruments) shall be in compliance with SEBI Circulars dated September 13, 2012 and May 22, 2014 (for cash) and May 8, 2017 (for e-wallets), respectively.

“AMC would be liable to compensate for losses, if any, occurred to a unit holder, where unauthorised transaction(s) occur(s) in unit holder’s folio due to fraud/ negligence/ deficiency on the part of the AMC, employee of AMC or persons/ entities whose services have been availed by the AMC including the platform providers, MFDs, RTAs, MFU, and channel partners, irrespective of whether or not the fraud is reported by the unit holder. For this purpose, it is clarified that any unauthorised transaction(s) performed by the Investment Advisors while providing services to the unit holder(s) would not be considered as a liability of the AMC,” SEBI in the circular said.

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