As per the new Reserve Bank of India (RBI) directives, banks and their employees are not allowed to receive incentives directly from insurance and mutual fund companies. Pursuant to which, the sale of these products may reportedly see some moderation, if the incentive given to employees at bank branches for selling insurance and mutual funds comes down.
Most insurance companies and mutual funds companies have distribution tie-ups with banks, whose branches play a crucial role in the sale of insurance and mutual fund products. Insurance and mutual fund companies have leveraged the reach of bank branches to sell their products. Both parties benefit. The insurers and funds save on costs, while the banks earn fees.
Recently, the central bank in its monetary policy review stated that banks did not have clear segregation of duties of marketing personnel from other branch functions, and bank employees were directly receiving incentives from third parties such as insurance, mutual fund and other entities for selling their products, which may lead to mis-selling and distortion of the staff incentive structure.
Further, to ensure customer due diligence is adhered to, RBI has asked banks to extend KYC/AML/CFT norms to wherever third party products are sold as agents as a measure of abundant precaution. Banks would also have to maintain details of third party products sold and related records for a period and in the manner prescribed in the KYC/AML/CFT guidelines.
The banking regulator has also decided to issue guidelines on wealth management services offered by banks, marketing of third party products like insurance and mutual funds and bring out a comprehensive policy on KYC/AML and CFT by June-end.
