Govt to set up agency to regulate collective investment schemes

Tarun SharmaMoneycontrolThe government will set up a new agency to regulate collective investment schemes (CIS), sources told MoneycontrolA collective investment scheme is a scheme wherein several individuals pool money for investing in a particular asset(s) and share the returns based on pre-agreed terms. Over the last few years, CISs have become synonymous with scams, as investors have been left in a lurch after being promised juicy returns. At present, SEBI is the regulator overseeing the activities of collective investment schemes. However, SEBI feels that CISs can be monitored better by state-level authorities. The state governments of Odisha and Maharashtra are already started regulating CISs.The regulator has proposed a cap or 2-3 percent on the commission that CISs pay to their agents, in the draft bill of Multi State Cooperative Societies Act, 2002.“CISs are push products and the commissions are as high as 40 percent in many cases,” a source told Moneycontrol, adding that agents would share commission with investors as an incentive to get them to invest in the scheme.In the Budget speech, the Finance Minister has proposed amendments in Multi State Cooperative Societies Act. With this amendment, the government wants to fill the regulatory gaps and strengthen the enforcement framework. Collective Investment Scheme is regulated by various acts including Banking Act, Reserve Bank of India Act, SEBI Act, Companies Act and state governments. However, these schemes exploit the regulatory gaps. Having an expert regulator would be a welcome step,” says Sumit Agrawal, Partner, Suvan Law Advisors.“Despite SEBI’s tough stand and numerous banning orders, it is tough for them to refund investors in such schemes owing to unidentifiable locations of assets and their valuation, and the availability of the genuine investors and their data,” he says.SEBI has passed more than 300 hundred orders against CISs in last two years, but experts feel SEBI alone will not be able to check the activities of CISs.