DBOD.CO.FSD.No. /24.01.026/2012-13

June 28, 2013

All Scheduled Commercial Banks
(excluding RRBs)

Dear Sir/Madam

Guidelines on Wealth Management /Marketing/Distribution Services offered by Banks – Draft Guidelines

Please refer to paragraphs 86, 87 and 88 (extracts enclosed) of the Monetary Policy Statement 2013-14 announcement on May 3, 2013 regarding issue of guidelines on wealth management services and distribution of third party financial products by banks.

2. The draft guidelines on Wealth Management and Marketing/Distribution services have been prepared and are enclosed. Comments on the draft guidelines may be addressed to the Chief General Manager, Department of Banking Operations & Development, RBI, 13th floor, Shahid Bhagat Singh Marg, Fort, Mumbai - 400 001 by e-mail latest by July 31, 2013.

Yours faithfully

(Prakash Chandra Sahoo)
Chief General Manager

Enc: As above

EXTRACT

Date: May 03, 2013

Monetary Policy Statement 2013-14

Provision of Wealth Management Services and Marketing and Distribution of Third Party Financial Products

86. The Reserve Bank recently undertook investigations in the light of reported allegations that certain banks were involved in structuring transactions to aid tax evasion and fraudulent transfer of funds. The investigations revealed the need for better regulatory compliance by banks. It is proposed to issue guidelines which would include, inter alia, the following:

(a) Wealth Management

87. Wealth management services (WMS) generally include referral services, investment advisory services (IAS) and portfolio management services (PMS). In India, banks with well-developed branch network have access to a large customer base. Banks offering wealth management services are exposed to reputational risks on account of mis-selling of products, conflict of interest, lack of knowledge and clarity about products and frauds. It is, therefore, proposed to:

• issue draft guidelines on wealth management services offered by banks by end-June 2013.

(b) Marketing and Distribution of Third Party Financial Products

88. As per extant instructions, banks are allowed to market insurance and mutual fund products as agents of other entities on non-risk participation basis. It has been observed that in some cases, banks did not have clear segregation of duties of marketing personnel from other branch functions, and bank employees were directly receiving incentives from third parties such as insurance, mutual fund and other entities for selling their products. Such practices may lead to mis-selling and distortion of the staff incentive structure. It is, therefore, proposed to advise banks to:

• ensure segregation of the marketing function from the approval/transactional process at bank branches;
• ensure that its employees do not receive cash/non-cash incentives directly from insurance companies, mutual funds and other third party product providers; and
• have a board approved policy to avoid mis-selling and conflict of interest in marketing and distribution of own or third party financial products.