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Home / Mutual Funds / News /  Sebi moves to increase mutual funds accountability, tightens disclosure of forensic audits

Mumbai: The Securities and Exchange Board of India (Sebi) on Tuesday announced a set of reforms for mutual funds to make them more accountable by enforcing a stronger code of conduct for Asset Management Companies (AMCs) and fund managers, CIOs and dealers. To address the information asymmetry the regulator said that listed entities will have to disclose if forensic audit has been initiated against the company and also the final report, only probes initiated by regulators and enforcement entities will be exempt.

Here are the key board announcements —

Holding fund managers accountable

A detailed code of conduct will now be applicable on fund managers including Chief Investment Officers (CIOs) and Dealers of asset management companies. Further, the Chief Executive Officer will be responsible to ensure that the Code of Conduct is followed by all such officers. Currently this code of conduct is only applicable to trustees and the AMC.

Disclosure of forensic audit

Sebi observed that there is a concern of information asymmetry when it comes to forensic audit of listed companies. These audits are typically initiated by banks, management, new management among others.

Sebi mandated that listed entities would need to disclose any audit initiated, the final report and management commentary to stock exchanges. Only the audits initiated by regulators and enforcement agencies need not be disclosed.

Disclosing violations of insider trading

Under the informant mechanism allowed informants a time period of three years to report any violation of insider trading rules.

Repo clearing

Sebi approved setting up of a limited purpose repo-clearing corporation.

Strengthening debenture trustees

The market regulator also strengthened the role of debenture trustee by ensuring that they do independent due diligence of the assets on which charge is being created. They would convene the meeting of debenture holders for enforcement of security, joining the inter-creditor agreement (under the framework specified by RBI).

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