The Reserve Bank of India, RBI, has proposed new guidelines on wealth management and financial product distribution services offered by banks to address concerns over mis-selling, lack of adequate grievance resolution mechanism and weak internal control mechanisms.

In a statement issued Friday, the Reserve Bank has suggested that that banks should set up a separate unit for wealth management and advisory services.

It has said that the banks should conduct all Wealth Management Services (WMS) activities either from a separate subsidiary or through a Separately Identifiable Department or Division (SIDD) set up for the purpose.

To address the issue of conflict of interest arising from a single entity conducting both the activities of advisory or fund management as well as marketing, it is proposed to segregate the two functions.

RBI, in its annual monetary policy statement had announced that it would come out with guidelines for banks with regard to Wealth Management Services, which include investment advisory services and portfolio management services The guidelines suggest that banks would require prior approval of RBI before undertaking any wealth management scheme and the unit providing investment advisory services will have to be registered with market regulator SEBI.

RBI has said that while banks must adhere to the KYC/AML guidelines, they must also ensure that persons undertaking marketing/distribution services of third party financial products should have suitable professional qualification for carrying out the role.

The guidelines suggest that there should be a Code of Conduct for the sales personnel and it must be ensured that no banking laws are broken.

To ensure transparency, transactions above Rs 50,000 for wealth management products should only be accepted through debit to customers account with the bank and not in cash/cheque of other banks.

RBI has invited comments on the guidelines from stakeholders by 31stJuly.