SEBI To Initiate Forensic Audit Of All Mutual Funds And Trustees

The audit comes when the market regulator has taken measures to strengthen governance structures in the mutual fund industry.

<div class="paragraphs"><p>A woman walks past the SEBI headquarters in Mumbai. (Photograph: Francis Mascarenhas/Reuters)</p></div>
A woman walks past the SEBI headquarters in Mumbai. (Photograph: Francis Mascarenhas/Reuters)

Market regulator Securities and Exchange Board of India has invited expressions of interest to empanel auditors to conduct a forensic audit of all domestic mutual funds, their asset management companies and trustees, according to a newspaper advertisement.

The audit comes alongside measures undertaken by the regulator to strengthen governance structures in the rapidly growing mutual fund industry. Last week, SEBI rolled out a discussion paper proposing an overhaul of the role and responsibilities of the trustees of mutual funds.

Both actions by SEBI must be seen in the light of major events in the mutual fund industry over the past few years, said a senior executive at a domestic mutual fund on the condition of anonymity. The first was the Franklin Templeton episode, where the regulator was concerned about the withdrawal of funds by a top official before the fund house’s debt funds were wound up.

The second episode was the more recent case of frontrunning at Axis Mutual Fund last year, the executive said. In that case, two fund managers—Viresh Joshi and Deepak Agrawal—were sacked after alleged frontrunning.

The market regulator is working towards ensuring better compliance in the interest of protecting the retail investor. To that end, domestic mutual funds could work towards hiring chief vigilance officers, which have so far been associated with banks, the executive said.

In its discussion paper last week, SEBI called for a clearer segregation of trustees’ responsibilities. It said some responsibilities could be outsourced to third parties in the interest of ensuring that trustees’ core responsibilities are met.