AMCs Must Have Surveillance, Controls, and Escalation Processes to Detect and Prevent Potential Market Abuse | SEBI

Circular No. SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/107, Dated 05.08.2024

Earlier, SEBI carried out a public consultation on the proposal of putting in place a structured institutional mechanism at the end of AMCs, which can proactively identify and deter instances of such market abuse. Accordingly, the SEBI (Mutual Funds) Regulations, 1996 was amended. Now, SEBI has directed that this mechanism shall consist of enhanced surveillance systems, internal control procedures, & escalation processes to effectively identify, monitor & address misconduct. Furthermore, the mechanism must ensure the following:

1. Accountability: The CEO, MD, or an equivalent senior executive, along with the Chief Compliance Officer of the asset management company, shall be responsible for implementing the institutional mechanism to deter potential market abuse.
2.  Alert-based surveillance mechanism: AMCs shall develop and implement systems and procedures to generate and process alerts in a timely manner.
3. Processing of alerts: During alert processing, AMCs must review all recorded communications, including chats, emails, dealing room access logs, and CCTV footage (if available). Additionally, AMCs should maintain and monitor entry logs to their premises.
4. Standard operating procedures: The AMCs shall formulate written policies and procedures for conducting examination and taking action in case of potential market abuse in securities by its employees and connected entities.
5. Escalation process: AMCs must implement an escalation process to promptly notify their Board of Directors and Trustees about any potential market abuse and the results of their examination.

Further, to ensure the effective functioning of the institutional mechanism, stock exchanges and depositories must develop systems in consultation with AMFI to facilitate data sharing with AMCs. Also, in order to ensure uniform implementation of the abovementioned institutional mechanism across the industry, AMFI in consultation with SEBI, shall prescribe the detailed implementation standards within fifteen days from the date of this circular.

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