Sebi Mulls Stiffer Penalties For Errant Mfs

The Securities and Exchange Board of India (Sebi) is considering stiffer penalty structure for the mutual fund industry concerning violation of norms.

The suggestion has been forwarded to the Justice R L Dhanuka panel by the regulator for working out stiffer penalty structure for violations of Mutual Fund Regulations by mutual funds and individuals.

The panel will also work on a new penalty structure regarding violation of all Sebi regulations.

Sebi executive director Pratip Kar, who is in charge of the mutual fund division, told Business Standard the present penalty structure is not adequate.

He said, The current structure has the provision for suspension of concerned intermediaries besides adjudication of a monetary penalty up to a maximum limit of Rs 10 lakh. The monetary part needs to be made stiffer to dissuade violation of norms.

 

Kar said emphasis would also be given on actions against individuals who are responsible for violation of regulations. He said, Mutual funds do not manage their own money. They should have personnel who are accountable for managing investors funds. For the purpose, we have also commenced collection of all data about key personnel in a mutual fund.

Commenting upon the nature of violations, Kar said market players used to violate prudential norms by not maintaining the arms length between the sponsor and the asset management company. There used to be rampant use of affiliate companies for stock market transactions by mutual funds. Many firms used to have a weak back office.

Says Kar, The current regulations provide for a strong back office for any new mutual fund. The inspection that was conducted recently, however, does not reveal the kind of deficiencies that used to occur earlier due to a weak back office.

In spite of the proposed move, Sebi also intends to give greater freedom to fund management. He said, We intend to ensure that the investor confidence is rebuild. We are looking at a scene where we witness a total deregulation as far as fund management is concerned and at the same time have off-site supervision for closer scrutiny in the operations.

There is also a need for all mutual funds to disclose their portfolios. He admitted that the retail investor needs to know where his money has been parked. He said, Mutual funds will have make all such disclosures in their balance sheets by March 98. It is only then we can achieve the disclosure standards that exist abroad.