SRO appointment: FPSF moves Securities Appellate Tribunal against market regulator

The Securities and Exchange Board of India’s decision to appoint AMFI-promoted Institute of Mutual Fund Intermediaries as a channel between itself and the mutual fund distributors has been challenged by Financial Planning Supervisory Foundation in the Securities Appellate Tribunal. In its appeal filed on Thursday, FPSF has termed Sebi’s decision as illegal and called for it to be ‘struck down.’ In March 2013, Sebi had invited applications from interested groups for acting as self-regulatory organisation (SRO) for MF distributors by July 31, 2013. Three organisations — FPSF, IMFI and Organisation of Financial Distributors (OFD) — had applied for the same. Sebi had, through a letter dated February 6, 2014, communicated that it had granted in-principle approval to IMFI for functioning as an SRO. FPSF, promoted by FPSB, that runs the Certified Financial Planner certification programme, in its appeal claims that only FPSF had received its certificate of incorporation before the due date, July 28, 2013. While IMFI received its certificate of incorporation on August 2, 2013, OFD received it on August 13, 2013. FPSF, which has Justice BN Srikrishna and former expenditure secretary Dhirendra Swarup on its board, has alleged that while IMFI submitted its application on July 29, 2013, it got incorporated as a company only on August 2, 2013, and therefore its application and Sebi’s decision is illegal. Sebi’s SRO regulations 3(1) say that, any group or association of intermediaries, which is desirous of being recognised as a SRO, may form a company registered under Section 25 of the Companies Act, 1956, and such company may make an application to the board for grant of certificate of recognition as a SRO. However, the appeal claims that the application was submitted before the company was registered under Section 25 of the Companies Act, 1956. “The decision of Sebi to grant the in-principle approval to respondent no. 2 (IMFI) for acting as an SRO for mutual funds distributors was illegal,” said FPSF in its appeal. It further said, “The application of IMFI dated July 29, 2013, was not duly filed as the application was made before IMFI was incorporated as a Section 25 company, i.e. August 2, 2013. Therefore, the application of IMFI should have been summarily rejected by Sebi on the ground that the application was made by an entity which is not a ‘legal person’ and that is a pre-condition in order for a person to be capable of making a valid application as per the Sebi SRO regulations besides under common law.” The appellant has also alleged that Sebi has acted arbitrarily in the entire selection process of the SRO.