Banks should have separate wealth mgmt units, says RBI

Seeking to check misselling of financial products, the Reserve Bank of India on Friday suggested that banks should set up a separate unit for wealth management and advisory services.

“Banks may conduct all Wealth Management Services (WMS) activities ... either from a separate subsidiary or through a Separately Identifiable Department or Division (SIDD) set up for the purpose,” the RBI said in its draft guidelines on wealth management/marketing/distribution services offered by banks.

It said to address the issue of conflict of interest arising from the single entity conducting both the activities of advisory or fund management as well as marketing, it is proposed to segregate the two functions.

The bank in its annual monetary policy statement had announced that it would come out with guidelines for banks with regard to WMS.

“Banks would require prior approval of the RBI before undertaking WMS services whether through a subsidiary or a SIDD and would have to comply with the following requirements in both cases,” said the draft guidelines on which RBI has invited comments from stakeholders by July 31.

It said the banks should put in place a mechanism to deal with the menace of misselling is a serious issue as far as consumer protection is concerned.
Banks should put in place a code of conduct for persons engaged in WMS and set up robust internal grievance redressal machinery.

“Banks should put in place sound internal control mechanisms and a system of checks to address risk management,” the draft guideline said.

The unit providing investment advisory services, it said, should be registered with market regulator Sebi.