SEBI Proposes Overhaul Of Mutual Fund Trustees' Roles And Responsibilities
Among the changes being proposed by SEBI is a clearer definition of the core responsibilities of trustees.
In view of the rapidly expanding assets under management of the mutual fund industry in India, the market regulator has proposed to overhaul the role and responsibilities of the trustees of mutual funds. By law, trustees hold the property of a mutual fund in trust for the benefit of unitholders.
Over the past decade, assets under management in the mutual fund industry have grown fivefold to Rs 39.89 lakh crore at the end of 2022.
"As per the extant regulatory framework, the primary role of the Trustees is to ensure that AMCs (asset management companies) act in the best interests of the unitholders," said the Securities and Exchange Board of India in a consultation paper on its website on Thursday. But there are still instances where a conflict of interest could occur.
Among the changes being proposed by SEBI is a clearer definition of the core responsibilities of trustees. Mutual fund regulations have given trustees a number of responsibilities over time, but there are some key areas that should be the focus for the trustees, according to SEBI.
These are as follows:
Ensuring fairness of fees and expenses charged by the AMC.
Overseeing performance of the AMCs in its schemes versus performance of peers or the appropriate benchmarks.
Preventing misconduct, including market abuse and misuse of information by the AMC, its employees, distributors.
Ensuring there is no undue influence by sponsors, associates, or other stakeholders of AMC.
Preventing undue or unfair advantage to any of its associates/group entities by AMC.
Avoiding conflicts of interest between shareholders, stakeholder associates, and unitholders of the AMC.
Ensuring there is no mis-selling to increase AUM and the valuation of the AMC.
SEBI asked trustees to take a more active role to independently evaluate the extent of compliance by asset management companies. The regulator has called for asset management companies to submit exception reports or analytical information that helps trustees carry out their function.
In certain cases, SEBI said trustees can depend on third parties like audit firms, legal firms and merchant bankers to carry out due diligence. This is so that trustees can focus on their core responsibilities.
Among other changes being proposed, the regulator has called for a review of the structure of trustees. Currently, there are two options: a board of trustees and a trustee company. There are only a few trustees that have formed a board, while most have formed a trustee company.
"It may be desirable to have a corporate form for Trustees in view of perpetuity and financial independence," said SEBI, proposing that a period of a year be given to existing trustees with a board structure to transition to a trustee company.
Finally, SEBI said that it may also increase the required number of trustees from the current number of four.
Comments must be sent to SEBI by Feb. 24.