SEBI Chief Draws AMFI’s Attention to Form an Ethical Committee

June 1, 2023 Mutual Fund

The market has several institutions set up to ensure you are well-informed while defending your rights as an investor. The Association of Mutual Funds of India (AMFI) is a prime example of such a renowned organisation.

AMFI is the association of mutual funds in India. This organization currently has 43 SEBI registered Asset Management Companies (AMCs) as its members. The AMFI serves as the industry’s regulator, has established clear standards and ethics for trading and investing in mutual funds, and strives to follow those standards. It takes directions from SEBI and ensures that the laws and regulations are applied correctly, striking a balance between industry advancement and the protection of investors’ interests.

On Tuesday, May 30, 2023, AMFI’s new premises at BKC, Mumbai, India, was inaugurated by the Securities and Exchange Board of India’s (SEBI) Chairperson, Madhabi Puri Buch.

Mr A Balasubramanian, Chairman of AMFI, said, “We are delighted about the inauguration of AMFI’s new premises by the SEBI Chairperson. This new premise is a reminder of our constant endeavour to promote and strengthen the mutual fund industry in India. And with this centrally located office, AMFI is well-positioned to drive positive change and provide valuable services to its members and stakeholders.”

Mr NS Venkatesh, CEO of AMFI, said, “The new AMFI office reflects our unwavering commitment to the mutual fund fraternity and all stakeholders. It is a testament to our vision of strengthening the Indian mutual fund ecosystem and driving investor education and awareness. We look forward to working closely with our industry partners to shape a brighter future for the mutual fund industry in India.”

What Did SEBI Chief Suggest to AMFI?

At the inaugural, SEBI Chief congratulated AMFI saying, “These new premises at BKC are a testament to the growth and vitality of the mutual fund industry.”

Further, the SEBI chairperson Ms Buch addressing the Rs 40 trillion Indian mutual funds industry, made some important comments. She emphasised the importance of transparency as a core value in the mutual funds industry and stressed that the industry should focus on upholding the spirit of the law and not just mere compliance.

She said, “If the AMFI fails to adopt self-regulation measures, SEBI will have to step in to ensure investor protection. We know that AMFI does not have an SRO (self-regulatory organisation) status but must self-regulate and act against misdemeanour by individuals, or else SEBI will have to step in. Do what is right, not what is easy.”

The SEBI Chief’s strong words for the mutual fund industry came against the backdrop of the recent regulatory ban on Axis Mutual Fund’s former dealer Viresh Joshi. As he was front-running the fund’s trades to make illegal profits for himself and his family members. Chandresh Nigam, the former MD and CEO of Axis Mutual Fund, was forced to resign and depart in March 2023 when SEBI’s order regarding front-running at the fund business came to light.

[Read: Axis Mutual Fund Suspends Two Fund Managers for Alleged Irregularities. Know the Details Here]

The SEBI Chief has instructed AMFI to form an ‘Ethical Committee’ to ensure that all industry participants obey the rules in letter and spirit to prevent similar or any other unlawful practices in the future. The committee needs to make sure that its AMC members don’t cut corners in order to draw in investor’s attention and boost assets under management (AUM). It must also prevent individuals from triggering regulatory intervention by ensuring ethical practices and promptly addressing the wrongdoings.

Should AMFI form an Ethics Committee?

Talking about the proposed ‘Ethical Committee’ of AMFI, Ms Madhabi Puri Buch said, “The panel 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,” She added further.

According to Ms Buch, the mutual fund industry has set a strong foundation; now, the risk that can tremble the industry structure is individual misconduct. As a result, now is the time to build a robust structure that helps prevent risk to the mutual fund industry. SEBI Chief also expressed her confidence in the industry’s potential to expand from its current size to around Rs 100 lakh crore.

Furthermore, Ms Buch said, “The industry itself has not invested much in building core technology. I worry for you on that count. I would urge you to invest in the systems and technology.”

Technology is a crucial component that enables the sector to operate effectively and affordably at the same time. The SEBI Chief advised AMFI to focus on improving the sector’s infrastructure by investing in substantial technological advancements and suggested exploring better ways to utilise technology internally.

This article first appeared on PersonalFN here