Sucheta Dalal :Over Rs200 crore of fund commissions of banks held up for non-compliance with KYC norms
Sucheta Dalal

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Over Rs200 crore of fund commissions of banks held up for non-compliance with KYC norms  

April 28, 2010

Some leading private sector banks, including foreign banks, are struggling to comply with the market watchdog Securities and Exchange Board of India’s (SEBI) circular which mandates banks and national distributors to submit know your client (KYC) details to fund houses. According to souces in the fund industry, some banks were reluctant to submit KYC data to fund houses. When fund houses reported this to the market regulator, SEBI apparently asked the houses not to release their commissions until the banks submitted KYC data to the fund houses.

This has led to a huge piling up of commission with asset management companies (AMCs) that was supposed to be paid to banks. According to industry estimates, more than Rs200 crore in commission fee is yet to be released by fund houses.

“Nobody has completely submitted the documents. Whatever data we have got, we have released commission against that


A lot of data comes from banks like HDFC Bank, Citibank and ICICI Bank. The work is in progress. SEBI is correct in forcing the holding back of commissions as funds should know the source of investments, as per the KYC norms,” said a top official from a leading fund house.

In December 2009, SEBI had mandated all AMCs to obtain KYC documents from all bank distributors and hold the commission of distributors back unless they submit the correct details. Banks that are national distributors were holding back citing operational inconvenience and business secrecy. SEBI hit back by asking funds to hold back commissions to force the banks to reveal the KYC data.

There is another angle to all this. According to the rules of the Reserve Bank of India, if an ‘income receivable’ for banks is due for more than 90 days it is considered ‘doubtful debt’. According to sources, banks do not want to show the commssions as doubtful.

The KYC issue exposes another flaw in the business model of fund houses. Many fund houses—mainly the foreign ones—have been managing money of retail customers without knowing who these customers are. They have been relying on foreign and other large private banks which hold the KYC data. This is another step by the regulator that would force fund houses to be truly customer-oriented. — Moneylife Digital Team


-- Sucheta Dalal