SEBI’s FICP Plan: Boosting Retail Bond Investment

The Securities and Exchange Board of India (SEBI) has released a consultation paper outlining a new framework for Fixed Income Channel Partners (FICPs). This initiative aims to significantly broaden retail investor access to corporate bonds, particularly targeting individuals in tier-II, tier-III, and rural regions.

Corporate Bond Market Growth

• Outstanding corporate bonds increased from Rs 17.5 lakh crore in FY15.
• This figure grew to over Rs 60 lakh crore by July 31.

This move comes as India’s corporate bond market has experienced substantial growth, yet remains largely dominated by institutional investors, with individual retail participation notably low.

Understanding the FICP Framework

Under the proposed structure, a Fixed Income Channel Partner can be either an individual or a non-individual entity. These partners must be enlisted with a recognized stock exchange and subsequently appointed by one or more Online Bond Platform Providers (OBPPs).

Eligibility for Individual FICPs

• Must be an Indian citizen and at least 18 years old.
• Required to have passed Class XII.
• Must meet ‘fit-and-proper’ standards.
• Hold a valid NISM certification specifically for fixed-income securities.
• Mutual fund distributors registered with AMFI are eligible if they obtain the necessary NISM certification.

FICPs will primarily assist investors with essential processes like onboarding, documentation, Know Your Customer (KYC) requirements, and facilitating transactions. Crucially, they are explicitly prohibited from handling client funds or securities directly, ensuring all orders are routed through the OBPP platform.

OBPP Oversight and Accountability

• Conduct due diligence on appointed FICPs.
• Monitor FICP activities to ensure compliance.
• Provide adequate training to FICPs.
• Maintain accurate client mappings.
• Investigate any complaints related to FICP actions.
• OBPPs will be held accountable for the actions of their appointed FICPs.

Safeguards Against Mis-selling and Remuneration Structure

To mitigate the risk of mis-selling, FICPs must strictly adhere to a comprehensive code of conduct. This code specifically prohibits product recommendations based on financial incentives, the use of aggressive sales tactics, and any conflicts of interest.

• Remuneration for FICPs will come solely from the appointing OBPP.
• This compensation will be through commission sharing.
• Commissions, fees, or brokerage charged to clients will be capped at a maximum of 2.5% of the investment value.

The proposal also clarifies that grievances related to FICPs will not have access to the Investor Protection Fund or the Settlement Guarantee Fund.