MC Exclusive: Sebi ups vigilance; examines phones, laptops of key mutual fund executives in surprise inspections

The inspections carried on the top AMCs are essentially a second level of scrutiny, beyond automated surveillance.

Sebi has stepped up its regulatory vigil across major market participants with surprise inspections that involve examination of digital devices including mobile phones, iPads and laptops of top honchos, people familiar with the development told Moneycontrol.

Over the past 12 months, five out of the top ten mutual funds have been subject to these inspections, with mobile phones of some top executives accessed by the capital market regulator.

Moneycontrol has sent a questionnaire to SEBI on this development and will update the story when we hear from the regulator.

These inspections are different from the search and seizure operations faced by Quant Mutual Fund on June 28.  Search and seizure operation are surveillance-based procedure where the regulator is suspicious of a certain kind of trades or practices. This requires the regulator to unearth prima facie evidence suggestive of the alleged wrongdoing, based on which a court gives permission for a search and seizure operation.

The people familiar with the inspections conducted on the top funds said that these are what Sebi internally terms as “thematic inspections” wherein they inspect records of multiple mutual funds to obtain information on block deals, concurrent trades, broker communications, among others. The idea behind seizing data is to analyse patterns to see if there are any aberrations or seemingly odd practices that need to be scrutinised further.

The inspections carried on the top AMCs are essentially a second level of scrutiny, beyond automated surveillance. Much of the routine audit procedures have been automated by Sebi as part of their overall surveillance framework. These physical inspections are without prior notice and involve an element of surprise, the people cited said.

Some of the AMC chieftains Moneycontrol spoke to said on condition of anonymity said that this was a worrying trend. “Information spreads fact. People who need to reset their phones have already done so. But even if you have nothing to hide professionally, access to personal digital devices is disturbing,” one of them said.