Mutual fund industry body, the Association of Mutual Funds in India (AMFI), has said that the new ‘institutional mechanism’ aimed at preventing potential market abuse introduced by the capital markets regulator will ensure transparency, operational excellence and investor protection.
In an effort to identify and deter instances of front-running and fraudulent transactions in securities at asset management companies, capital markets regulator, the Securities and Exchange Board of India (SEBI) put in place an 'institutional mechanism', a circular by Sebi said on August 5.
As per AMFI, the institutional mechanism to prevent any potential market abuse is a new operational initiative, initiated by the industry and guided by the SEBI.
“This initiative is designed to reinforce our commitment to the highest standards of transparency, operational excellence and investor protection. We believe that these standards, developed by AMFI after consultation with industry, will not only enhance the integrity of our processes but also ensure that our investors can make informed and confident investment decisions,” the industry body said.
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“We look forward to working collaboratively with SEBI to implement these essential standards,” the AMFI added.
The new measures by SEBI are aimed at curbing misconducts such as front running, insider trading, or misuse of sensitive information, putting the onus of responsible conduct on the CEO or managing director, and the Chief Compliance Officer of the AMC to implement the deterrence.
AMCs will also have to lay down written policies and take action in case of potential market abuse by employees and connected entities, and these policies will have to be approved by the board of the asset management company. Any potential market abuse will have to be dealt with sternly by the AMC, including suspension or termination of such persons/entities.
The fund houses will have to implement a mechanism by way of alerts get automatically generated in the system, if there is any suspicious activity detected. SEBI has said that AMCs will need to record a list of such alerts, their observations and what they action they take. This report will be part of the mandatory half-yearly reports that AMCs give to SEBI.
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Additionally, an escalation policy shall have to be drafted by AMCs for alerting the board regarding instances of potential market abuse, and results of the exams being conducted by the AMCs.
A clearly documented whistle-blower policy also needs to be codified by the AMC, according to the latest Sebi guidelines.
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