The Securities and Exchange Board of India (Sebi) has issued a consultation paper on the role and obligations of mutual fund trustees.
It seeks views on issues related to review of role and obligations of the trustees as well as provide clarity on the role and accountability of the boards of Asset Management Companies (AMC) to safeguard unitholders’ interest, across all products and services.
Mutual funds in India are funds established in the form of a Trust to raise monies through the sale of units to the public or a section of the public under one or more schemes for investing in securities and such other assets and instruments as may be specified by Sebi from time to time.
Mutual Funds in India have a three-tiered structure comprising of the Mutual Fund, the Trustees and the AMCs. The role of the Trustees and AMC is governed by the Sebi (Mutual Funds) Regulations, 1996.
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Among others, Sebi has proposed enhancing the accountability of the board of an AMC by way of amendments to mutual fund regulations to make the board of AMC responsible for compliance with the regulations.
As per the extant regulatory framework, the Trustees hold the property of the Mutual Fund in trust for the benefit of the unit holders. The Trustees appoint an AMC to float schemes for the Mutual Fund and manage the funds mobilised under various schemes, in accordance with the investment objectives and asset allocation pattern of each scheme.
“In view of the increasing scale and reach of the Mutual Fund industry, trustees’ role in respect of unitholders’ protection assumes even greater significance,” it said in the consultation paper.
At present, two structures are permitted for trustees under the mutual fund regulations, corporate structure and board of trustees structure.
“It may be desirable to have a corporate form for trustees in view of perpetuity and financial independence. In this regard, it is proposed to provide a period of one year for existing trustees with a board of trustee structure to convert into a trustee company, from governance point of view and consistency in applicability of provisions,” it said.
Stakeholder comments have been sought on the consultation paper till February 24.
Recently, Sebi also proposed an institutional mechanism that will require stock brokers to put in place systems for detection and prevention of market abuse.
Sebi’s consultation paper seeks views from market participants on a proposal which requires broking firms and their senior management to be accountable for such detection/ prevention of fraud or marker abuse, by setting up robust surveillance and control systems, and ensuring appropriate escalation and reporting mechanisms.
This proposal also enumerates some of the common examples of market abuses that brokers must look to detect/prevent, the entities who should be subject to surveillance, and the accountability that is entailed.
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