On August 1, 2024, the Securities and Exchange Board of India (SEBI) introduced significant amendments to its Mutual Funds Regulations. These changes, encapsulated in the SEBI (Mutual Funds) (Second Amendment) Regulations, 2024, aim to fortify the market against abuse by mandating asset management companies (AMCs) to establish robust mechanisms for identifying and deterring fraudulent activities. This article delves into the key aspects of these amendments and their implications for the mutual fund industry.
Key Amendments:
Definition of Market Abuse A pivotal addition to the regulations is the formal definition of "market abuse." According to the newly inserted clause (nb) in Regulation 2, market abuse encompasses manipulative, fraudulent, and unfair trade practices that contravene Section 12A of the SEBI Act, 1992, or any provisions under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, or the SEBI (Prohibition of Insider Trading) Regulations, 2015. This definition aims to provide a clear framework for identifying and addressing various forms of market misconduct.
Institutional Mechanism for Deterrence Regulation 25 has been expanded with the addition of sub-regulations (27) to (29), which mandate AMCs to establish an institutional mechanism to identify and deter potential market abuse. This includes specific measures to prevent front-running and fraudulent transactions in securities.
Responsibilities of AMC Leadership The amendments place significant responsibility on the leadership of AMCs. The Chief Executive Officer (CEO), Managing Director (MD), or equivalent, along with the Chief Compliance Officer (CCO), are held accountable for implementing the institutional mechanism designed to deter market abuse. This ensures that the highest levels of AMC management are directly involved in maintaining market integrity.
Whistleblower Policy Another critical requirement is the establishment of a documented whistleblower policy. This policy must provide a confidential channel for employees, directors, trustees, and other stakeholders to report concerns about suspected fraudulent, unfair, or unethical practices. The policy also mandates procedures to protect whistleblowers, thereby encouraging transparency and accountability within AMCs.
Implementation Timeline
The implementation of these amendments is staggered based on the size of the AMCs. For those managing assets under INR 10,000 crores, sub-regulations (I) and (II) of Regulation 3 will come into effect six months from the date of publication in the Official Gazette. For larger AMCs, these provisions will take effect three months after publication, while sub-regulation (III) will be enforced after twelve months.
Conclusion
The SEBI (Mutual Funds) (Second Amendment) Regulations, 2024, mark a significant step towards curbing market abuse in the Indian mutual fund industry. By defining market abuse and mandating AMCs to implement rigorous deterrent mechanisms, SEBI is reinforcing its commitment to maintaining a fair and transparent securities market. These amendments are expected to bolster investor confidence, ensure better compliance, and enhance the overall integrity of the mutual fund industry in India.
Comments