SEBI Plans Institutional Mechanisms for AMCs to Deter Market Abuse and Fraud

SEBI Report; Dated: 20.05.2023

The SEBI has proposed the setting up of adequate surveillance and internal control systems by Asset Management Companies (AMCs) to deter possible market abuse and fraudulent transactions. SEBI requires senior management of AMCs to take responsibility for ensuring that an institutional mechanism is put in place to deter and report misconduct by their employees, or any other connected entities.

Further, the AMCs shall customize their surveillance systems and internal control procedures including alert types, parameters and thresholds based on back testing of historical data to ensure their effectiveness.

If the AMCs detect any alert, suspicion or exceptions relating to possible misconduct, such instances shall be adequately investigated. For the purpose of such investigation, AMCs shall examine all information including recorded communication, trading activity, lifestyle etc.

The AMCs should have a documented policy on the types of actions to be taken based on the likelihood of wrongdoing and other relevant factors. Further, the terms of employment/ contract shall also clearly specify the actions that may be taken by the AMCs in the likelihood of possible misconduct by the employees of AMCs and connected entities.

Also, AMCs are required to take appropriate action against entities connected to the AMCs (including their employees), who appear to be directly or indirectly involved in possible misconduct. AMCs must submit Action Taken Reports to BODs of AMCs, Trustees of Mutual Funds and SEBI on a periodic basis.

The Audit Committee and Board of Directors of the AMCs must review the compliance with the provisions of this framework at least on a half-yearly basis and shall verify that systems in place for deterrence and reporting of possible misconduct, are adequate and operating effectively.

The Board of Directors of AMCs shall review and update the systems, processes, and control procedures on a regular basis (at least once a year) to keep pace with market developments and regulatory changes.

Click Here To Read The Full Updates