What changed
RBI has mandated that banks disclose to customers all commissions or other fees received from mutual funds, insurance companies, and other financial firms for marketing or referring their products. This applies to all such activities, including those previously permitted under the Master Circular on Para-banking activities, such as marketing mutual fund units, insurance agency business, referral services, and non-discretionary investment advisory services.
What it means for you
Banks must now be transparent about the financial incentives they receive when selling third-party products, which could affect customer trust and product recommendations. This may require banks to update their disclosure processes and train staff to communicate these details clearly. It also levels the playing field among competing products by making hidden costs visible to customers.
What you must do
- Update customer-facing documentation and scripts to include clear disclosure of all commissions or fees received from third-party product providers.
- Train frontline staff and relationship managers on the new disclosure requirements for mutual fund, insurance, and other financial product sales.
- Review existing agreements with mutual funds, insurers, and financial companies to ensure compliance with the disclosure mandate.
- Implement internal audit checks to verify that disclosures are being made accurately and consistently across all channels.
Who it affects
All scheduled commercial banks (excluding RRBs) engaged in marketing or referral of third-party financial products, Bank branches and relationship managers selling mutual funds, insurance, or other financial products, Compliance and audit teams responsible for para-banking activities
Does this disclosure requirement apply to all types of third-party products sold by banks?
Yes, it covers mutual fund units, insurance products, and other financial products marketed or referred by banks, including those under referral arrangements or non-discretionary investment advisory services.
When does this rule come into effect?
The instruction is effective immediately from the date of the circular, November 16, 2009.
Do banks need to disclose commissions even for products where they have a non-risk participation arrangement?
Yes, the disclosure requirement applies regardless of whether the bank has risk participation or not, as long as it receives any form of commission or fee for marketing or referring the product.