Sebi circular raises MF trustees accountability
July 8, 2023
Directs AMCs to set up committee for investor protection
The Securities and Exchange Board of India (Sebi) on Friday issued a detailed circular, which will put the onus on mutual fund (MF) trustees to protect unitholders’ interests. These include monitoring fees and expenses, prevention of mis-selling and front running and conflict of interest between various stakeholders.
The market regulator has stated that asset management companies (AMCs) shall constitute a unit holder protection committee (UHPC) to oversee the protection of unit holders’ interests, adoption of sound and healthy market practices, and compliance with laws/regulations or other related processes.
Further, the UHPC must keep unit holders well informed about and educate them on MF products, the investor charter, and complaint-handling procedures. It shall submit its observations, along with recommendations periodically to the board of the AMC.
As a result, the board of directors of the AMCs and board of directors of the trustee company will meet at least once a year to discuss the issues concerning the mutual fund, and future course of action wherever required, says the circular.
MF norms also state that in the event of a company being appointed the trustee, the chairperson of the board of that firm shall be an independent director. Accordingly, the firm appointed trustee of an MF shall appoint an independent director as chairperson of its board, within a period of six months of this circular coming into force.
The new framework would come into force from January 1, 2024.
Additionally, Sebi has also specified certain core responsibilities of trustees, such as ensuring the adoption of adequate systems to prevent mis-selling by employees, and ensuring that AMCs have a mechanism to put a check on market abuse by its staff and related parties to avoid front-running, form-splitting, etc.
Further, they shall ensure any undue or unfair advantage is not given to any associate/group entity, and that operations are not unduly influenced by the sponsor, its associates, or other stakeholders. Consequently, they shall be responsible for addressing conflicts of interest between the shareholders/stakeholders/associates of the AMCs and unit holders.
Importantly, they will have to ensure that fees and expenses charged by the AMCs are fair, besides reviewing the performance of schemes in comparison to peers or the underlying benchmarks.
Also, the trustees would be responsible for periodically reviewing the steps taken by AMCs for the folios which do not contain all KYC attributes with bank details.
To enable trustees to focus on core responsibilities, Sebi allows them to enlist the services of professional firms such as audit firms, legal firms and merchant bankers etc for carrying out due diligence.
Such non-core responsibilities, which may be outsourced, are: ensuring that AMCs manage operations schemes independently from other activities, discharging their role of being a custodian of unit holders’ assets in accordance with regulations and the trust deed, reviewing the AMC’s net worth on a periodic basis to ensure compliance with the prescribed threshold.
[The Financial Express]
