Why AMFI DDQ is important for all MFDs and How to do it ?

AMFI DUE DELIGENCE PAPER CONSULTANCY

BACKGROUND

Securities and Exchange Board of India ('SEBI') vide Circular No. Cir/IMD/DF/13/2011 dated 22 August 2011 had mandated the AMCs/ Mutual Funds to put in place a due diligence process to regulate the distributors in the interest of investors and further satisfy themselves about the fit and proper criteria of their distributors.

Further, it was also clarified by SEBI vide Circular No. Cir/IMD/DF/7/2012 dated 28February 2012 those AMCs/ Mutual Funds may take assistance of an agency of repute while carrying out due diligence process of the Distributors. Accordingly, Association of Mutual Funds in India ('AMFI'), on behalf of AMCs and in accordance with the SEBI guidelines/ circulars, has designed a unified due diligence exercise of mutual fund distributors and appointed Chartered Accountant firms for conducting this exercise.

Accordingly, Abhinesh Kumar, a veteran in Mutual Fund Industry has been providing his support to IFAs to get this Due Diligence conducted seamlessly, based on the scope of services set out in the respective letter.

Please note that a proper completion of Due Diligence will help you achieve a most perfect base and guideline for your distribution business, also. This article is a help line for filing the DDQ form , which is divided into following six (6) sections :

The duly completed DDQ should be signed by the distributor (or an authorised official of the distributor in the case of non-individual distributor) certifying that the information provided herein is complete and accurate. Please initial on all pages of the DDQ including supplementary sheets, used if any.

The duly completed DDQ should be handed over to the CA/Consultancy firm appointed by AMFI for conducting the Due Diligence. In case additional information or clarification is required, the respective firm in the course of the due diligence process, the distributor is requested to provide the same.

Due Diligence Questionnaire ( to be submitted during audit)

Section 1: Information about the Distributor

1.1

Name of the Distributor:

Enter your name as it appears in https://www.amfiindia.com/locate-your-nearest-mutual-fund-distributor-details

1.2

AMFI Registration Number (ARN) - Enter our ARN Number

Date of initial registration – dd/mm/yyyy Current validity of ARN – dd/mm/yyyy

1.3

Current Address (Registered office as well as corporate office, if different)

Reg address as it appears here : https://www.amfiindia.com/locate-your-nearest-mutual-fund-distributor-details

1.4

Category:

Mention your business type

Individual Proprietorship Partnership firm LLP

Public Ltd. Company Pvt. Ltd. Company Bank Public Sector Enterprise

Others (Pl. specify)

1.5

Registration number of main business : Mention your ROC number, if it is a Pvt Ltd, LLP or Ltd company

Registered with : ROC, if Pvt Ltd , Ltd, LLP

Place of incorporation: Mention City

1.6

a. Are you registered under SEBI (Investment Advisers) Regulations, 2013 ? :

Mostly it is No

If Yes, please mention your Registration No and Validity : NA

b. Are you registered under any SEBI Regulations ? :

Mostly it is No

If yes please specify,

Name of the regulations : NA

Registration No. : NA , and

Validity : NA

c. Are You registered with any other regulator in India? : No

If yes, please provide the details (name of the regulatory authority: registration /license no., place and the validity thereof : NA

d. Are you registered with any regulator Outside India ? : No

If yes, please provide the details (name of the regulatory authority; registration /license no. , place/country and the validity thereof : NA

1.7

Please indicate various business activities you / your firm/organization is engaged in (other than mutual fund distribution) :

Please attach an Annexure 1.6d with full details of Agency Code, company name etc, if any

❑ Banking ❑ Depository Participant

❑ Stock Broking ❑ Investment Advisory

❑ PMS ❑ AIF ❑ Wealth Management / Family office

❑ Small Savings ❑ Company Deposits ❑ NPS

❑ Life Insurance ❑ General Insurance ❑ Real Estate broking

❑ Others (please specify)

1.8

Please attach the organization chart of your firm / Mutual Fund distribution division of your organization along with a brief background of the senior / top management.

Attach an Organisation chart , if you are a non-individual; or else mention NA

1.9

How many employees do you have who are engaged in selling mutual funds? :

Mention NIL, if you are a non individual or else mention the number. Ensure that all such employees are NISM certified

1.10

Have you appointed any sub-distributors for selling mutual funds : Mention the number

If yes, please specify the number of your sub-distributors :

Mention the details on a separate sheet, if any Annexure 1.10

1.11

Are you affiliated to any AMC? : No

If Yes, please state the name(s) of the AMC(s) : NA

1.12

Do you have any associate / subsidiary engaged in MF distribution business? : No

If Yes, please provide their names : NA

Section 2: Mutual Fund Business Activities
2.1	a. Number of years of experience of in mutual fund sales / distribution activities: xxx Years
	b. Investor segments handled — ❑ Retail ❑ HNI / Mass Affluent
	❑Family Offices ❑ Corporate ❑ Trusts ❑ PSE ❑ ALL categories Mention your service area
	c. Transaction modes offered - ❑ Physical mode (paper based) ❑ Online Mode ❑ Both Mostly it is both, if you are using any Online platform ! Or else choose your option accordingly
	d. Customer relationship & transaction categories: ❑Execution only ❑ Advisory ❑ Both For MFDs Its Advisory !
2.2	a. Please explain your process for selection / recommending a MF scheme based on the customer's investment objective and risk-profile. Create an Annexure 2.2a /SOP for this section, explaining all the flow in details. Must share the step to Step process of Client Dealings b. Please explain the process followed by you for reviewing the same. Create an Annexure 2.2b / SOP for this section, explaining all the flow in details c. How often do you review your customer's mutual fund portfolio?
2.2	❑ 6-monthly ❑ Annually ❑ Once every Quarter Whatever you choose, you need to explain in Annexure 2.2 c and have to add atleast 2 samples
2.3	In cases where your customer relationships / transactions are categorized as "Advisory", how do you assess the appropriateness of schemes recommended to the customer for specific customer category / risk profile? Please tick the applicable response below i. Do not recommend MF product beyond upper limit of risk appetite ❑ ii. Appraise the customer of inherent risks & take necessary steps & customer's confirmation to upgrade customer risk profile ❑ iii. Recommend the customer to seek solution from another service provider ❑ iv. Not applicable since providing Execution Only services for MFs ❑ Explain your Unsuitability Marking Process
	b) Do you maintain customer logs* to ensure the above ❑Yes ❑ No Customer logs may include records of discussions, emails / with investors pertaining to risk profiling, financial planning, investments decisions. recommendations. investment transactions Present the copy of such Log

2.4	a. For cases where your customer relationships / transactions are categorized as "Execution Only", please indicate the process followed for receiving / executing / tracking the customer's instructions (e.g., Transaction Slips /Physical (Order) Register; On-line system; Phone- based system etc.) : NA Please attach copies/ extract of sample logs based on 2 actual transactions during review period to illustrate the above NA

2.4	b. If you have reasons to believe that a transaction / product is not appropriate for the customer, do you send a written communication regarding the unsuitability of the same to the customer? ❑Yes ❑ No ( actually NA in my case) In such a case — (i) Do you ensure that the communication is duly acknowledged and accepted by investor? ❑ Yes ❑ No ( Mark 'Yes' and add Annexure 2.4b i) (ii) Do you obtain confirmation from the customer to the effect that the transaction is `execution only' notwithstanding your communication about its unsuitability, prior to the execution of the transaction? ❑ Yes ❑ No NA c. Do you collect any fees other than transaction charges for Execution services? ❑ Yes ❑ No If yes, please provide details including the amount of fees collected from the customers It should be 'No' in all the cases
2.5	Please mention your aggregate commission from all AMCs during the most recently completed financial year: 18-19 Check and fill your figure from http://portal.amfiindia.com/spages/ACDVol-2018-2019.pdf
2.6 Please mention your latest* AUM and number of clients / folios / SIPs etc. in the table below Fill these boxes from your AUM figures
		AUM (in crore)				No. of unique customers	No. of Folios	No. of Active SIP accounts
		Equity	Debt	Liquid	Others
Individuals
Non-Individuals
Total

* as on

Section 3 : Operations & Customer Service Related Processes
*(Please use separate sheet to provide your responses to the questions below, if the space is not sufficient)*
3.1	Please explain briefly the process followed by you for on-boarding clients through — i. Online Mode : Mention details if you do Online boarding ii. Physical mode : Mention Details if you do Offline On Boarding
3.2	Please explain briefly the process followed by you for conducting IPV of the customer : A Simple Answer like these will help : - I do all IPV personally for my local clients - For out station Clients, I talk to them on Video call or do IPV only when ensure that I have met them before.
3.3	Do you keep track of all mutual fund transactions undertaken by your clients (e.g... Physical Register/ Excel sheet/ ' On-line tracking system such as daily transaction feeds from Registrars etc.)? ❑ Yes ❑ No If yes, please explain in brief, the process followed to by you and also attach a sample copy of the relevant register / log of any day during review period to illustrate the same) Attach an Annexure 3.3 with full details /SOP
3.4	Explain the process followed by you / your organization to disseminate the information to your customers w.r.t. — (a) Scheme related information/change in fundamental attribute etc. (b)Scheme Performance (c) Regulatory updates (d) Changes in operational procedures which customer should know Attach Separate Annexure explaining the process
3.5	Do you assess customer satisfaction? ❑ Yes ❑ No If yes, please explain the process and share the feedback for the most recent assessment. Attach a Copy of such Feedback form - Online or Offline
3.6	Please explain the customer complaint handling process, timelines and escalation matrix followed by you / in your firm / organization. Please provide the number of customer complaints received by you during each of the last 3 years and the nature of complaints and the status thereof. Fill in the actual details , or else mention '0' in each Box
	Nature of complaint	Year			Total	Resolved	Pending
		FY2016	FY2017	FY2018
	Non-receipt of Statement of Account	5	4	5	14	14	0
	Discrepancy in Statement of Account	0	0	0	0	NA	0
	Wrong switch between Schemes	0	0	0	0	NA	0
	Unauthorized switch between Schemes	0	0	0	0	NA	0
	Deviation from Scheme attributes	0	0	0	0	NA	0
	Non - updation of email / mobile no/ bank details, etc	0	0	0	0	NA	0
	Non receipt of Redemption Proceeds	2	1	0	3	NA	0
	Non receipt of Dividend	0	0	0	0	NA	0
	Mis-seling / Wrong scheme sold	0	0	0	0	NA	0

Section 4 : Compliance and Risk Management
(Please use separate sheet to provide your responses to the questions below, if the space is not sufficient)
4.1	Do you have a separate compliance and risk management function? ❑Yes ❑ No - If yes, please describe any controls / checks performed by this function, including how is it ensured that regulatory changes are implemented and monitored : Mostly it is 'NA' - If not, how do you ensure that regulatory changes are implemented and monitored ? Being an individual ARN holder and small team of members, I ensure all regulatory changes for implementation directly on myself, as per my understanding and information from the AMC relationship managers
4.2	Please provide the no. of your employees holding — (i) NISM Certification.................. & (ii) EUIN :......................
	Do all your employees engaged in selling mutual funds hold — ( i) Valid NISM Certification? ❑ Yes ❑ No (ii) Valid EUIN ? ❑ Yes ❑No If No, please explain the reason and current status of — Mostly the answer here is 'No' .
	NISM Certification : NA	EUIN : NA
4.3	Do all your sub-distributors hold — Valid NISM Certification? ❑ Yes . ❑ No Valid ARN / EUIN? ❑ Yes ❑ No If No, please explain the reason and current status of — Mostly the answer here should be 'NA'
	NISM Certification: NA	ARN / EUIN: NA
4.4	How do you ensure/keep track of validity of (a) NISM certification and (b) AMFI registration / EUIN of your employees engaged in the selling mutual funds and your sub-distributors, if any? Attach an Annexure 4.4 to explain the flow

4.5	How do you ensure that your employees meet with all regulatory/ compliance requirements? (e.g., SEBI regulations, AMFI Code of Conduct and AMFI best practice guidelines issued from time to time?) Attach an Annexure 4.5 to explain the process
4.6	Describe the organizational controls to ensure that the following processes are delinked from sales and relationship management processes and personnel: i. Customer risk profiling / investment objective / evaluation of product suitability ii. MF scheme evaluation and assessing its appropriateness thereof to various customer risk categories (i.e.. scheme selection). Attach an Annexure 4.6 to explain the process
4.7	Please explain the procedure followed by you to disclose the commission' you receive in a particular scheme to your customer. Attach an Annexure 4.7 to explain this and you must add a link 'Commission disclosure' on your website
4.8	If are you affiliated to any AMC, how do you ensure that no conflict of interest arises while selling mutual funds to customers? Are your customers kept informed about this or the possible conflict of interest that may exist? ❑ Yes ❑ No NA
4.9	Do you create / issue your own marketing materials? ❑ Yes ❑ No If yes, please describe the process to ensure accuracy and completeness of such materials and adherence to SEBI's Advertisement guidelines in respect of mutual funds. Do you submit a copy of such advertisements / promotional material prepared and issued by you pertaining to the products of a particular mutual fund to the concerned AMC for compliance clearance / AMC's information? ❑ Yes ❑ No NA
4.10	Do you have any clients who have — (a) NOT completed KYC in ALL respects? ❑Yes ❑ No (b) NOT provided PAN? ❑ Yes ❑ No (c) NOT provided UBO details? ❑ Yes ❑ No (b) NOT provided FATCA self-certification? ❑Yes ❑ No If YES, please mention the number of clients and explain the reason and current status for each for each of the above, and the steps taken by you, if any, to remedy the same. Fill up the correct figure after taking data from RTA
4.11	How and where are your customer records maintained? How do you ensure confidentiality of your customers' details and financial transactions? Attach Annexure 4.11 to explain the Data management procedure. If you have your own server then explain how you keep the safety of data
4.12	Do you have a process of regular internal or external audit of transactions, exceptions
	identification, escalation and resolution? ❑ Yes ❑ No
	- If yes, please describe the broad scope / areas covered by the audit and share a copy / extract of the audit observations relating to your mutual fund distribution activity (including online transactions, if applicable). For smaller firms you may say 'NO'

4.13	a. If you are providing Online services, please explain briefly the process followed by you for — i. Clients' data transmission to RTAs ii. Information security iii. Prevention and identification of 3rd party funds iv. Fraud prevention and identification v. Business Continuity Plan / Disaster Recovery Plan (during crisis to ensure smooth service to your clients) Attach Annexure 4.13 a/SOP b. For purchase transactions. how do you ensure the minimum subscription amount as per SID for the first purchase transaction and additional purchase? Attach Annexure 4.13 b /SOP
	c. Do you pool the clients' funds in a common bank account? ❑Yes ❑ No No
	If yes, explain briefly the checks & controls to identify and prevent 3rd party funds. NA
	d. In this context, have you come across any instances of 3rd party payment? ❑Yes ❑ No NO
	If yes, was this reported to the concerned AMC? ❑Yes ❑ No NA
	e. What remedial action was taken to prevent recurrence? NA
	F. Do you conduct / undergo "Systems Audit" of your online platform? ❑Yes ❑ No
	If yes, please share a copy / extract of the latest report.
4.14	Have there been any instances of fraud by any of your employee/s engaged in the selling
	mutual funds or your sub-distributors during the past 3 years? ❑ Yes ❑No
	If yes, please provide details, current status and how the same has been addressed and steps taken to prevent recurrence.

Section 5: Human Resources Management
5.1	Briefly explain your HR policy/process for recruitment of sales team? If any
5.2	Please explain the broad parameters used for performance review of your employees engaged in the selling mutual funds and sub-distributors.
5.3	Please mention briefly the broad content of the training provided (if any) to your employees engaged in the selling mutual funds and your sub-distributors. What is the frequency of such training programs?
5.4	How do you keep yourself / your employees updated about the regulatory changes and developments relating to mutual fund industry, changes mutual fund schemes / products / revision in operational matters related to mutual funds etc.
5.5	How do you ensure that there is no mis-selling by your employees? Have you received any investor complaints about mis-selling or providing incorrect-information
	by any of your employees (in the last 3 years)? ❑Yes ❑ No NO
	If yes, please provide details, current status and how the same has been addressed and steps taken to prevent recurrence.

Section 6: Legal (including that of associates & subsidiaries)
6.1	Have you / your firm / organization faced any regulatory or statutory fines / penalty / levies imposed or action from SEBI or any other regulatory body /Govt. Agency in the last 5 years? ❑ Yes ❑ No If yes, please provide a list along with details, including cause/s and corrective actions taken otherwise mention 'NA'
6.2	Have you / your firm/ organization's faced any legal action / litigation (including Consumer Forum
	complaint/s) from any of your mutual fund customers in the last 5 years? ❑Yes ■❑ No
	If yes, please provide the facts in brief, including the cause and status thereof and any compensations paid to the customer in settlement or court decree or else mention 'NO'
6.3	Have any of your associates or subsidiaries faced any regulatory or statutory fines / penalty
	imposed or action from any other regulatory body /Govt. Agency in the last 5 years? ❑Yes❑ No
	If yes, please provide a list along with details, including cause/s and corrective actions taken.
6.4	Has any of your associates or subsidiaries faced any legal action / litigation (including Consumer
	Forum complaint/s) from their customers in the last 5 years? ❑Yes ❑ No
	If yes, please provide the facts in brief, including the cause and status thereof and any compensations paid to the customer in settlement or court decree.

DECLARATION

I/We, hereby declare that the above information is true and correct to the best of my / our knowledge and belief at the time of submission. In case there is/are any change(s) in any of above information, I/we undertake to promptly inform the concerned CA/consultancy firm engaged by AMFI for conducting the due diligence as well as AMFI and the concerned AMC(s).

I / We also authorize the CA/consultancy firm which conducted my/our due diligence to release the the above information to AMFI for being passed on to the concerned AMCs.

Signature of the distributor / authorized official( s) with official stamp

Name of the signatory Designation:

Name of the Distributor ARN

Contact Details of the signatory —Email address:

Telephone Number: Mobile number:

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Due Diligence Questionnaire ( to be submitted during audit)

Section 1: Information about the Distributor

Section 2: Mutual Fund Business Activities

Section 3 : Operations & Customer Service Related Processes

Section 4 : Compliance and Risk Management

Section 5: Human Resources Management

Section 6: Legal (including that of associates & subsidiaries)

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