Amfi to form ethics panel to curb misconduct in asset management companies

The Securities and Exchange Board of India (Sebi) is guiding the Association of Mutual Funds in India (Amfi) to form an ethics committee to take action against individual misdemeanours in asset management companies (AMCs).

Speaking at the inauguration of an office of Amfi in Mumbai on Tuesday, Sebi Chairperson Madhabi Puri Buch said the markets regulator was building an institutional mechanism to prevent and deter wrongdoings in the industry.

The proposed ethics committee of Amfi, a nodal association of mutual funds in the country, is envisioned to be able to take action on a self-regulatory basis against individuals who are found involved in misconduct such as front-running and insider trading.

“It will not have judicial powers, but a voluntary alignment of the industry to work for the collective good. And if that means that the ethics committee has to call somebody and say this is bad behaviour and we will all have to pay for your bad behaviour, then that is by its voluntary nature. If that entity says ‘we do not care’, it is free to leave Amfi,” Buch said.
 
Noting that the industry gets information about such individual misdemeanours before the regulator, Buch said, “If they (AMCs) know that somebody is misbehaving and sooner or later when the regulator shows up, we will all suffer, that is up to them to ask their members to behave themselves.”
 
In case the self-regulatory model doesn’t curb such wrongdoings, then the regulator will “come in with a hammer”, she added.
 
The mutual fund body is planning to prepare a charter for the proposed ethics committee and get it approved by Sebi in the next two months. “The ethics committee can recommend action against individuals like fund managers and other employees to asset management companies. AMCs have signed a code of conduct agreement with the association and it will be on them to take the action,” said N S Venkatesh, CEO, Amfi.
 
Earlier this month, Sebi issued a consultation paper proposing AMCs to design an alert system to identify possible instances of misconduct through lifestyle checks of employees and scanning of recorded communications and CCTV footage, among others. Further, it put the onus on AMCs to establish internal control systems to detect instances of front-running, insider trading, mis-selling of products, misuse of information by key employees and delay in execution of orders of AMCs by their brokers/dealers.
 
Further, the association has sought more time to submit their comments on the latest proposal by Sebi to overhaul total expense ratio (TER) for mutual funds. The stakeholders will now be able to submit comments till June 6, an extension of seven days from the previous deadline.
 
Buch’s comment on self-regulation comes at a time when the MF body is moving towards a new target of Rs 100 trillion as assets under management with more responsibilities under Amfi 2.0.