WF: KYC has become a hot industry topic these days. Channel distributors have been asked to furnish a lot of KYC related information to all AMCs. Even as they struggle with this new directive, we have investors who are unable to change their channel distributor because AMCs do not recognize their signature - a position that creates an unfair playing field for them versus non channel distributors. What is your perspective on this? Is there a practical way in which this issue can be resolved?

Bharat Bhushan: Firstly, on KYC - there are multiple standards laid down depending on the type of distributor you are. If you are a stock broker, no further KYC is required for MF investments of your clients. Why is this the case? KYC means know your client. A distributor should know his clients. A bank should know its clients. An insurance company should know its clients. An AMC should know its clients. Everybody has responsibility to know their clients. How can you then say that if a broker has done a KYC, there is no need for an AMC to do so? Then, why are you not saying that if a bank has done a KYC, the AMC need not do its KYC? If you start relying on somebody else's KYC and not do your own, then the Government knows everybody. Why not rely on the Government and not do any KYC at all? Why this discrimination that brokers KYC is good enough but everybody else's KYC is not good enough for AMCs?

And, if the principle is that it is good enough to rely on other's KYC, do that for banks. Do that for non channel distributors like us. Equip us to do full KYC and then rely on us. Why the discrimination - why is it that only brokers KYC is superior to all else?

Again, I want to stress that in my view, you should not rely on anybody else - every institution that transacts with a client must know its client. I am against this business of relying on somebody else. It is because of relying on others that we have this whole mess for clients of channel distributors. Today, if a client of a channel distributor wants to redeem his money from an AMC, he cannot go to the AMC and submit a redemption slip - the AMC does not know him! He is asked to go back to his distributor and route the redemption only through him - because the AMC has no records. When a client is dissatisfied with his channel distributor and wants to shift business to another, he cannot give a letter to the AMCs and ask them to change the broker code. Whereas for clients of all other types of distributors, a client can exercise this right. Why this discrimination?

AMCs tell us that this is because they don't have the client's signature on their records. But, for the last 2 years now, we have a centralized KYC process in place where clients have recorded all their details as well as their signatures. This is all stored centrally at CVL. Why can't AMCs access this central CVL database and verify the client's signature etc and then process his request. What was the purpose of doing an AMC industry wide KYC process and putting all clients through that effort - if you then turn around and say I don't know you? I don't buy this argument at all - I think the simple solution is to use the CVL database that has been created over the last 2 years and not cause pain for clients.

On the subject of discrimination, there is one more aspect I want to highlight. When our clients want any bank mandates etc changed, AMCs are now insisting that we get a bank attestation on the request. Why should I go to a bank - who is my competitor in this business - and ask him to attest my client's signature? It puts me at a disadvantage and puts the bank at a competitive advantage. We are highlighting to the bank that here is a good prospect for you - please go and approach this client for MF business. My point again here is that if AMCs have a centralized CVL database, use it, strengthen it where required - but don't keep relying on others. Don't ask for a bank attestation - do your own verification based on your own CVL database.

WF: I'm sure we can put these suggestions to AMCs and understand how best these ideas can be taken forward. The other aspect that did create some waves but now seems to have become very quiet is the advent of stock exchange platforms. There was much excitement at launch but transaction volumes are disappointing. What is your view on these platforms? What will motivate you to use this new facility?

Bharat Bhushan: We always believed that in the form it was introduced, it will be a non-starter. It was only hype created by the stock brokers, they were jumping with joy of being given the advantage over the normal distribution industry. They didn't understand how much effort is involved in being a fund distributor - they were just making so much of noise that it was appearing that it will be a runaway success.

We have had interactions with BSE/NSE. To make it work, they were contemplating to rope in distributors on the BSE/NSE platforms with limited access and lower fees etc. We had meetings in December and January - but now the enthusiasm seems to be dropping. Meanwhile we hear about super ATMs now!

All I can say is that for us, business continues as usual.

WF: What are your key concerns with the BSE/NSE platforms?

Bharat Bhushan: In the present system - I am a first grade citizen. If I join the BSE/NSE platform, I become a second grade citizen. I am happy being a first grade citizen - and my clients are happy - they don't have a problem with the present system.

SEBI is looking at the bigger picture - which is great. They are looking ahead, trying to plan for how to manage volumes when this industry becomes much bigger than it is now. We are very happy with this thinking. I am sure after some trial and error, we will all finally have a system in place that helps manage growing volumes and keeps all constituents interests in mind. We will evolve - different solutions will be experimented - one of them will finally work.

WF: Is there a case to revive the AMFI platform?

Bharat Bhushan: Rather than looking at an AMFI platform, the first thing that can be done is to strengthen the RTA system - move towards digital postings of transactions, central record keeping agency, I think all those systems needs to be looked into seriously.

Here again, the SEBI circular of Jan 27th prohibits RTAs to pool information. I can't see the logic in this. Pooling of information is the first step towards creating a common platform.

WF: Lastly, how have your DFDA members tweaked their business models after margins in MF business shrank post the Aug 09 ban on entry loads?

Bharat Bhushan: The best thing that has happened is that Mr. Vaidhyanthan has joined SEBI as ED. Now, we finally have someone who is focusing full time on mutual funds. Which means they are admitting now that so far, they didn't have anybody focusing on mutual fund industry.

We wish Mr. Vaidyanathan all success in his endeavours to reform and grow the mutual fund industry. There is still a big challenge in enhancing retail penetration and lot of effort will need to be put into this. We will look for a clear vision from him on the road ahead and we will also look for a stable regulatory environment - in which we know how to build our businesses.

We have seen so many changes in the last few months. There are still a number of areas where we hear some change may take place. We hear that expense ratios may change - some people tell us that expense ratios may increase to partially compensate for the margin squeeze in the distribution business. Once we have confidence in the stability of the regulations, we will be able to make our business plans accordingly.

Till such time, business is continuing as usual. We are not looking at exiting this business, we are maintaining all our relationships. We believe that authorities will eventually recognize that mutual funds are sold, not bought and that the distribution system has to be fairly compensated for its role, its value addition. Charging clients is a strict no-no. It doesn't work.