HomeWhat's TrendingSEBI Cracks Down on Mutual Fund Misconduct

SEBI Cracks Down on Mutual Fund Misconduct

The Securities and Exchange Board of India (SEBI) has tightened its grip on the mutual fund industry, issuing a new circular aimed at curbing market abuse. The regulator has mandated stringent measures for Asset Management Companies (AMCs) to detect and prevent fraudulent activities such as front-running.

The move comes after extensive consultations with industry stakeholders and reflects SEBI’s growing concern over potential misconduct in the financial markets. The circular requires AMCs to establish robust surveillance systems, internal controls, and escalation procedures to identify and address any suspicious activities promptly.

‘AMCs shall put in place an institutional mechanism for identification and deterrence of potential market abuse including front-running and fraudulent transactions in securities,’ the circular stated.

The onus of ensuring compliance lies squarely with the CEO or Managing Director and the Chief Compliance Officer of AMCs. They will be held accountable for the effective implementation of the new rules.

To enhance surveillance capabilities, AMCs must develop alert-based systems to detect suspicious patterns and conduct thorough investigations. All communications and access logs must be carefully reviewed as part of these inquiries.

SEBI has also emphasised the importance of whistleblower protection and regular audits of compliance systems. AMCs are required to report any suspicious findings to the regulator, providing detailed information about their investigations and actions taken.

The circular underscores SEBI’s commitment to safeguarding investor interests and maintaining the integrity of the securities market. By imposing stricter regulations on AMCs, the regulator aims to create a more transparent and secure investment environment.

‘AMCs shall take suitable action upon becoming aware of any potential market abuse by its employees or brokers/dealers, including suspension or termination of such persons/entities,’ the circular stated.

With these new measures, SEBI is sending a clear message to the mutual fund industry that it will not tolerate any form of market misconduct. The regulator’s proactive approach is expected to bolster investor confidence and strengthen the overall regulatory framework.

Monika Shanmugam
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