Mergers And Acquisitions In Banks, Mutual Funds: Be Aware Of The Consent Process

There are multiple mergers or acquisitions taking place in the financial services space. This would lead to a change in the ownership of the entity—such as banks, mutual funds, insurance companies, etc.,—that provide financial services to customers.

One of the key steps in the entire process is for the customer to give consent for the transfer of their account to the new entity, but the manner in which this is done is important.

Some of them actually need close attention from the investors so that they know what they are signing.

This refers to a situation where the individual is asked for clear and open consent for the action.

The individual is asked whether they want to continue with the new service provider, and if the customer wants to do so, then they would have to give a positive reply. This positive reply is the actual permission that is given by the individual, and this forms the basis for the actual transfer of the account and the relationship with the new entity.

This is the easiest and most open way to ensure that the choice is being made by the customer.

An example of this is where a credit card business is taken over by another bank, then consent is requested by the new bank and the customer has to say "yes" before the business is transferred.

One of the ways in which the transfer of the relationship is handled is by giving the investor an exit option without having any impact on them.

This kind of action usually happens in the case of investments. For example, if there is a merger of two mutual funds, the fund house will give the investor an exit option to take their investment out without any impact from an exit load if they do not want to continue in the future. This exit option is open for a certain number of days. The investor has to act during this time period to take advantage of the no-load.

This does not mean that they cannot otherwise exit, but this could come at the cost of an added expense, so this is why the time period has to be followed diligently.

There are also times when the investor or customer needs to act in a specific manner to ensure that they complete the consent process.

The important thing is to see how the entity is interpreting this consent, as it can work both ways. Sometimes it could be that no action means that the customer has no problem with the transfer, and this is considered positive consent.

In other cases, the exact opposite is true, as here no action means that there is no consent, which could lead to the closure of the account.

So, understanding the way the action is going to be construed is important.

This is the most dangerous form of consent because the customer has to be very alert here.

The conditions state that if there is a certain action by the individual, this will be deemed consent for the change.

For example, a bank could say that if you use its services after a certain date, it will be considered consent, and the account will be transferred to the new entity. This could result in a situation where the customer is not aware of the details and then ends up with a certain outcome because of some action that they might have taken.

This is why reading the details and the fine print that comes along with the charges is important, and hence, they need to be looked at carefully.

Arnav Pandya is Founder of Moneyeduschool