Sebi weighs easing AMC pay disclosures as industry flags privacy concerns

The Securities and Exchange Board of India (Sebi) has proposed a review of disclosure rules for remuneration of mutual fund executives, signalling a possible shift away from employee-level salary disclosures towards a more consolidated framework.

In a consultation paper issued on Wednesday, the markets regulator sought comments on proposals to rationalize existing disclosure requirements while maintaining transparency for investors. The move follows industry representations that the current framework is overly granular, raises privacy concerns and offers limited additional value to investors.

Under the existing rules, asset management companies (AMCs) must disclose the names, designations and remuneration of their chief executive officer (CEO), chief investment officer (CIO) and chief operating officer (COO), along with details of the top 10 highest-paid employees and all employees whose remuneration exceeds specified thresholds.

Sebi is now considering a consolidated disclosure model that would move away from publishing remuneration details of individual employees. Along with the consolidated disclosure, AMCs must also share the ratio of CEO’s remuneration to median remuneration of AMC employees.

The market regulator has also proposed to mandate scheme -level consolidated disclosures of the total remuneration to fund managers of a specific scheme. As of now, the pay given to fund managers is only disclosed in the form of the top 10 employees or those earning above a threshold.

“Considering that investment decision‑making for each scheme rests primarily with the respective Fund Manager(s), there may be merit in providing visibility into their remuneration,” said the regulator in the draft paper.

However, such disclosures may only be made upon specific requests from the investors of a scheme due to “sensitivity considerations”.

The review follows representations from the Association of Mutual Funds in India (Amfi), which has urged Sebi to revisit existing disclosure requirements.

Amfi had questioned the scope, granularity, and relevance of the existing disclosure framework. A Sebi analysis showed that remuneration disclosures typically cover just 2-10% of employees in 36 of 51 AMCs, with higher coverage mainly in firms with smaller workforces due to the mandatory disclosure of the top 10 earners.

Industry participants said mutual funds operate differently from listed companies. Unlike shareholders, mutual fund investors are unitholders and do not exercise ownership rights over the AMC. As a result, the rationale for detailed employee-level remuneration disclosures may not fully apply to the mutual fund industry.

The industry has argued that investment decisions are generally driven by scheme performance, risk management, investment strategy and costs rather than compensation paid to individual employees.

“It is noted that the mutual fund regulatory framework already incorporates several safeguards, including caps on recurring expenses that can be charged to each scheme, oversight by trustees, independent directors, Nomination and Remuneration Committee of AMC, internal and external auditors and alignment of interest requirements such as mandatory investments by key employees,” the regulator said.

"Investors are more interested in the expenses of the mutual fund rather than the remuneration of the top employees. However, the remuneration of the fund manager may be of interest since they are invested in the scheme. The proposal eases norms for unlisted firms more than listed firms as the former also come under LODR norms,” said Jimmy Patel, managing director at Quantum Mutual Fund.