On May 20, IND SEBI proposed rules to deter fraudulent transactions.
IND SEBI issued consultation paper on institutional mechanisms for asset management companies for the deterrence of possible market abuse and fraudulent transactions.
It aims to help asset management companies (AMCs) set up adequate surveillance and internal control systems, which is collectively known as institutional mechanisms.
The proposals aim to increase accountability of AMCs and their senior management.
Surveillance
AMCs shall put in place robust surveillance systems and internal control procedures, to deter possible misconduct by employees or other entities which may have information.
Surveillance systems and internal control procedures must be customized including alert types parameters and thresholds based on the back-testing of historical data.
There should be a processing of alerts and actions relating to any possible misconduct.
All AMCs listed on recognized stock exchanges must have a whistle blower policy as per IND SEBI listing Obligations and disclosure requirements regulations, 2015.
Reviews and Reports
AMCs shall submit a action taken report, on actionable alerts at the level of AMCs, to the board of directors, trustees of mutual funds, and IND SEBI on a periodic basis.
The audit committee and the board of directors shall review the compliance with the provisions of the framework at least on half-yearly basis and verify their systems.
Senior Management
Shall ensure appropriate mechanism is in place, be accountable for non-compliance, but existing, onerous provisions for compliance may be relaxed after implementation.
Effectiveness
The deadline for comments is Jun. 3, 2023; comments can be submitted via email.
Jun. 2023 Deadline Extension
On Jun. 1, 2023, IND SEBI extended timeline for comment submission to Jun. 8, 2023.
Aug. 2024 Amendments Finalized
On Aug. 5, 2024, IND SEBI issued circular on implementation of the proposals above.
Instructs AMCs to take action for the identification and deterrence of potential market abuse including front-running / fraudulent transactions in securities, per the proposals.
Follows Aug. 1, 2024, IND SEBI issued the SEBI (mutual funds) (second amendment) regulations, 2024, which amend the principal 2017 mutual fund regulations to give effect to the changes, inserting provisions into the 2017 regs re the new requirements.
Also follows IND SEBI Apr. 2024 approved amendments at board meeting, #210502.
Requirements are effective as specified in reg 2 of the amendment regulations, partly on Nov. 2, 2024 and fully on later prescribed dates, the latest being Aug. 2, 2025.
