Listen to this article
SEBI has issued a consultation paper in which it has proposed that AMCs CEOs and senior management personnel will be held responsible if their AMC is found doing any misconduct and mis selling.
In this context, the market regulator has asked AMCs to put in place a surveillance system to check instances of front running, insider trading, mis selling of products and misuse of information by the AMC, its employees or distributors.
Sharing the rationale, SEBI said, “In the past, orders on two instances of front-running have been passed wherein broker- dealers, certain employees and connected entities were found to have front-run the trades of the AMCs. In another instance, an employee of a listed insurance company was observed to be front-running the trades of the company. In yet another instance, an employee of a Foreign Portfolio Investor (‘FPI’) was found to be front-running the trades of the FPI. In view of the above, it is considered important to have an institutional mechanism in AMCs for deterrence of possible market abuse or fraudulent transactions in securities related to AMCs’ transactions.”
The surveillance system is expected to:
- Deter possibility of misconduct by employees, distributors, brokers or other entities
- Detect misconduct by putting in place internal control procedures like alerts
- Give soft alerts that indicates likelihood of misconduct like lifestyle checks of employees, recording of all communication including emails and chats and CCTV footage
Here are some other key highlights of the consultation paper:
- If AMC detects any alert, it should immediately investigate the matter
- Stock exchanges will have to facilitate all relevant data required for investigation
- AMCs have to develop a standard operation procedure (SOP) for processing alerts
- AMCs should develop a documented policy on types of action to be taken against wrongdoers. These policies have to be part of contract
- AMCs will have to submit a report to their board of directors, trustees and SEBI regularly
- These systems and processes have to be reviewed twice a year
- AMCs are allowed to share resources, systems and infrastructure to reduce costs
- All AMCs will have to adopt whistle blower policy
You can share your suggestions to SEBI through email at manaswinim@sebi.gov.in , peterm@sebi.gov.in and rushikeshb@sebi.gov.in latest by June 03, 2023. Remember that you will have mention ‘Consultation paper on Institutional Mechanism for Asset Management Companies for deterrence of possible market abuse and fraudulent transaction’ in the subject line.
