**Summary:**
RBI Circular RBI201516379 DBR.No.FSD.BC.9424.01.026201516, issued on April 21, 2016, by the Reserve Bank of India (RBI) to all Scheduled Commercial Banks (excluding RRBs), outlines guidelines on Investment Advisory Services (IAS) offered by banks. This circular follows up on the Monetary Policy Statement 2013-14 and draft guidelines issued on June 28, 2013, addressing concerns regarding conflict of interest between IAS and marketing/distribution activities.
Given that SEBI regulates IAS under the SEBI Investment Advisors Regulations, 2013, banks are now prohibited from undertaking IAS departmentally. Banks intending to offer IAS must do so through a separate subsidiary or an existing subsidiary, ensuring an arm's length relationship with the bank.
Banks must obtain prior approval from the Department of Banking Regulation before offering IAS through an existing subsidiary or establishing a new subsidiary. The establishment of any subsidiary remains subject to existing guidelines on parabanking activities.
All bank-sponsored subsidiaries offering IAS must register with SEBI and adhere to the SEBI Investment Advisors Regulations, 2013, and all other relevant SEBI rules. IAS provided by these subsidiaries should only pertain to products and services banks are permitted to deal in under the Banking Regulation Act, 1949.
Subsidiaries must adhere to KYC/AML/CFT guidelines issued by the concerned regulator, as amended, for customers receiving IAS. Banks currently offering IAS have a three-year period from the date of the circular to reorganize their operations in accordance with these guidelines.
For further information, contact the Department of Banking Regulation, Central Office, Central Office Building, 13th Floor, Shahid Bhagat Singh Marg, Fort, Mumbai – 400 001. Phone: 022-22661602, Fax: 022-2270 1224, Email: cgmicdbrrbi.org.in, Website: www.rbi.org.in. The circular was issued by Lily Vadera, Chief General Manager.
Key Entities Referenced
RBI: Reserve Bank of India, the central bank of India.
Scheduled Commercial Banks: Banks included in the Second Schedule to the Reserve Bank of India Act, 1934, excluding Regional Rural Banks (RRBs).
Monetary Policy Statement 2013-14: A statement issued by the Reserve Bank of India outlining the monetary policy for the fiscal year 2013-2014.
Wealth Management/Marketing/Distribution Services: Services related to managing, marketing, and distributing financial products offered by banks.
Investment Advisory Services (IAS): Services offered by banks providing advice on investments.
SEBI: Securities and Exchange Board of India, the regulator of the securities market in India.
SEBI Investment Advisors Regulations, 2013: Regulations issued by SEBI governing investment advisors.
Department of Banking Regulation: A department within the Reserve Bank of India.
RBI/2015-16/379
DBR.No.FSD.BC.94/24.01.026/2015-16 April 21, 2016
All Scheduled Commercial Banks
(excluding RRBs)
Dear Sir/Madam,
Guidelines on Investment Advisory Services offered by Banks
Please refer to paragraphs 86, 87 and 88 of the Monetary Policy Statement 2013-14
and the subsequent draft guidelines on Wealth Management/Marketing/Distribution
Services offered by Banks issued on June 28, 2013, seeking comments of
stakeholders. The draft guidelines dealt with, inter alia, Investment Advisory Services
(IAS) offered by banks, and the concerns arising from the conflict of interest between
n
these activities and the marketing/distribution acwtivities of banks.
a
r
2. IAS is defined and regulated by SEdBI under the SEBI (Investment Advisors)
h
Regulations, 2013, and entities offeritng these activities need to be registered with
i
W
SEBI. In view of the same it is advised that henceforth, banks cannot undertake IAS
departmentally. Accordingly, banks desirous of offering these services may do so
either through a separate subsidiary set up for the purpose or one of the existing
subsidiaries after ensuring that there is an arm’s length relationship between the
bank and the subsidiary.
3. The sponsor bank should obtain specific prior approval of Department of Banking
Regulation before offering IAS through an existing subsidiary or for setting up a
subsidiary for this purpose. (Setting up of any subsidiary will, as hitherto, be subject
to the extant guidelines on para-banking activities of banks).
4. All bank sponsored subsidiaries offering IAS will be registered with SEBI and
regulated as per the SEBI (Investment Advisors) Regulations, 2013, and shall
adhere to all relevant SEBI rules and regulations in this regard.
5. IAS provided by the bank sponsored subsidiaries should only be for the products
and services in which banks are permitted to deal in as per Banking Regulation Act,
1949.
बकैं िंग (cid:157)(cid:157)विनियमि विभाग , ेन्द्रीय ायाालय, ेन्द्रीय ायाालय भिि, 13 िी मिंजिल, शहीद भगत स हिं माग,ा फोर्ा, म िंबई 400 001
Department of Banking Regulation, Central Office, Central Office Building, 13th Floor, Shahid Bhagat Singh Marg, Fort, Mumbai – 400 001
Phone : 022-22661602, Fax : 022-2270 1224, E-mail : cgmicdbr@rbi.org.in Website : www.rbi.org.in2
6. The instructions/guidelines on KYC/AML/CFT applicable to the subsidiary, issued
by the concerned regulator, as amended from time to time, may be adhered to in
respect of customers to whom IAS is being provided.
7. Banks which are presently offering IAS may reorganize their operations in
accordance with these guidelines within a period of three years from the date of
issue of this circular.
Yours faithfully
(Lily Vadera)
Chief General Manager
n
w
a
r
d
h
t
i
W