Indian banks should split wealth management and investment advisory services to avoid conflict of interest as well as address mis-selling of financial products, by creating a subsidiary, a draft report by a Reserve Bank of India (RBI) panel said.
The banks will need to get the RBI’s approval to create subsidiaries, which would be then registered with the Securities and Exchange Board of India (SEBI), the panel proposed on Friday.
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“To address the issue of conflict of interest arising from the single entity conducting both the activities of advisory/fund management as well as marketing, it is proposed to segregate the two functions,” the report said, adding the bank should have an ‘arm’s length’ relationship with its subsidiary.
The report also proposed the RBI should continue to supervise the bank’s activities done through the subsidiary.
Last month, the RBI said it would issue draft guidelines to address mis-selling of financial products and structure of transactions to aid tax evasion and fradulent transfer of funds.