SEBI has imposed a fine of Rs. 10 lakh on Franklin Templeton Mutual Fund for constituting an ‘informal investment committee’ and having an international CIO in this committee which was found to be in violation of SEBI rules, said a SEBI order.
In its reply to SEBI, the fund house defended that the informal group was formed to give flexibility in operations to the investment team but the functioning of the Investment Committee was formal and minutes were documented. However, SEBI found that such meetings didn’t include the name and signature of persons who attended these meetings.
Another violation of the fund house was inclusion of International CIO in this informal committee. “Even while Mr. Stephen H Dover, the international CIO of FTMF was a member of the Investment Committee, he was not involved in functioning nor in the decision making of the fund. His interaction with India team, including the India CIO, was limited to periodic reporting and update calls,” said the fund house in its reply to SEBI.
“The Board of MF Trustee Company had included name of International CIO as a member of Investment Committee as first person on the committee, his involvement in the investment operation either directly or indirectly could not be denied. The very fact that inclusion of International CIO in the Investment Committee itself entitles him to participate in the deliberation of the Investment committee. If he had to only ensure due diligence, risk management and compliance standards, and adhere to global best practices so as to protect the best interests of the investors, there was no need to include him in the Investment committee,” states the SEBI order.
“There are records of email exchanged and call logs details confirming the communication between Indian Fixed Income CIO and International CIO. AMC in its mail to SEBI inspection team has accepted that Indian Fixed Income CIO supervises and oversees the overall functioning of the investment team and reports/discusses important issues with International CIO. This implies that International CIO based in USA was privy to information about investment operation of Indian Mutual Fund,” states the SEBI order.
The market regulator has imposed a fine of Rs. 10 lakh for violating these two rules. SEBI has directed the fund house to pay the fine within 45 days from the receipt of this order.
