SEC norms hit NRI investments
MUMBAI: The tightening of compliance
norms by US regulator Securities Exchange Commission (SEC) may force foreign
financial companies in India with operations in the US to revisit their business
strategy for NRIs based in that country.
According to analysts, the
norms, which come into effect on March 12, could increase costs for financial
services companies. The amended rule will provide SEC and the public better
information about the custodial practices of registered investment advisers.
In light of these regulations, ING Vysya has discontinued securities
services -- portfolio management scheme and MF investment -- for NRIs who are
‘‘designated US persons''. In a letter to an NRI based in the US,
the bank said: ‘‘Various US securities and tax regulations relating
to the provision of certain securities services have an extraterritorial reach.
As a result, ING Vysya Bank (IVBL), too, is required to comply with procedures
specifically applicable to designated US persons to provide these services. This
vastly increases the cost of providing these services. As a result, IVBL has,
based on an economic strategic and risk perspective, decided to discontinue
providing securities activities to designated US persons.''
The bank,
however, will continue to provide other services to NRIs based in the US.
‘‘Designated persons'' are generally defined as a natural person,
residing in the US or any entity organised or incorporated under the laws of the
US. US citizens living aboard may also be deemed US persons under certain rules.
When contacted by TOI, an ING Vysya spokeswoman confirmed having discontinued
securities services for designated US persons, including NRIs. ING Vysya said
its focus on ‘‘NRI business has not been dominated by US customers
and, hence, a very small number of customers are impacted''.
SEC has
made amendments to Investment Advisers Act of 1940 relating to custody of client
assets to provide additional safeguards for investors. The amendments come after
a review by SEC following the Madoff scandal and several Ponzi schemes involving
misappropriation of customer assets.
However, it's not immediately
clear whether other foreign financial services companies, and as a result a
large number of NRIs, would also be impacted by the SEC ruling. Several foreign
financial services companies did not reply to TOI's email queries on whether the
new norms would impact them or whether securities servicing costs would go
up.
However, a Franklin Templeton spokesman said: ‘‘We
don't expect this development to have any impact on us as we do not distribute
our India-domiciled products in the US. We have a US-domiciled Indian equity
fund that US residents can access.''
Analysts said the SEC stipulations
would increase costs. A source said: ‘‘Look, what did SOX
(Sarbanes-Oxley Act of 2002 enacted as a reaction to scandals, including Enron
and WorldCom) do? It made IT guys richer and banks poorer. The SEC norms will
make auditors richer and banks poorer.''
Source:- The Times of India
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