GS 3: Economy| Mobilization Of Resources

Why in News?

The SEBI has proposed a self regulatory organisation (SRO) for the growing number of investment advisers to address issues related to the quality of advice given to investors by such entities.

Self Regulatory Organisation:

• An SRO is the first-level regulator that performs the crucial task of regulating intermediaries representing a particular segment of securities market on behalf of the regulator.
• An SRO would be seen as an extension of the regulatory authority of the SEBI and would perform the tasks delegated to it by the SEBI.
• The role of an SRO is developmental, regulatory, related to grievance redressal and dispute resolution as well as taking disciplinary actions.

Significance:

• SEBI is in receipt of a large number of complaints alleging charging of exorbitant fees, assurance of returns, misconduct etc. by investment advisers.
• Incidentally SEBI has said that there was a need for an SRO for mutual fund distributors — that currently register with Association of Mutual Funds in India (AMFI).
• It was aimed to bring in consistency in industry practices and also to take disciplinary action against alleged malpractices such as mis-selling of products and churning of portfolio.

Expected functions:

• SEBI has proposed the strengthening of the existing regulatory framework for SROs by introducing features such as a governing board with public interest directors and a clear policy for arbitration and dispute resolution.
• The regulator has proposed a governing board with at least 50% public interest directors along with 25% representation each of shareholder directors and elected representatives.
• Further, the governing board can appoint a managing director or chief executive officer to manage the daily affairs of the SRO.