BENGALURU: Setting aside Sebi's decision of granting in-principle approval to IMFI to be the Self Regulatory Organisation for mutual fund distributors, the Securities Appellate Tribunal directed the capital markets regulator to start the selection process afresh.

Sebi had granted in-principle approval last year to IMFI (Institution for Mutual Fund Intermediaries), which was challenged before the Tribunal by another applicant Financial Planning Supervisory Foundation (FPSF).

In a ruling today, the SAT said that Securities and Exchange Board of India (Sebi) failed to give hearing to the unsuccessful applicants seeking to become the SRO at the time of selecting and granting the in-principle approval to IMFI as was required under the regulations.

"Since Sebi has failed to comply with requirements of regulation... We squash and set aside impugned decision of Sebi dated February 6, 2014 and direct Sebi to select applicant afresh for grant of certificate of recognition in respect of distributors of mutual fund products," SAT presiding officer Justice J P Devadhar said in the order.

Sebi had argued, among other things, that as per norms, it was not required to offer hearing to the unsuccessful applicants at the time of granting final certificate of recognition.

According to SAT, Sebi's argument was "devoid of any merit".

FPSF, promoted by Financial Planning Standards Board India, was one of the applicants for setting up the SRO for mutual fund distributors.

IMFI is promoted by mutual fund industry body AMFI (Association of Mutual Funds in India), a grouping of all fund houses in the country that is also currently entrusted with the responsibility of distributor registrations.

The decision to set up an SRO followed concerns that MF distributors were not being regulated and there were rising complaints against them for mis-selling of products.

Besides IMFI and FPSF, the third applicant for this SRO role was Organisation of Financial Distributors, which was set up by Financial Intermediaries Association of India (FIAI), a grouping of 15 large distributors.

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