Mutual Fund News : SEBI Proposes to Enhance the Role, Accountability of Mutual Fund Trustees

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The Securities and Exchange Board of India (SEBI) has issued a consultation paper dated February 09, 2023 on review of the role and obligations of mutual fund trustees. Amidst growing scale of the mutual fund industry, SEBI has proposed to increase the role and accountability of the trustees in a bid to safeguard unitholders' interest.

This move by SEBI is in accordance to improve the accountability of the board of an AMC by way of amendments to mutual fund regulations to make the board of AMC responsible for compliance with the regulations. SEBI has proposed the following:

  • To mandate a ‘Unit Holder Protection Committee (UHPC)’ which should be constituted by board of AMC.

  • Trustees of mutual funds should focus on market abuse by AMC, its employees and mis-selling by the AMC to increase the asset base.

  • Trustees should be responsible for fairness of fees and expenses charged by the AMC, compare its performance with peers and ensure that AMC's sponsor is not getting any undue advantage.

  • The trustees should be responsible for periodically reviewing the steps taken by AMCs for the folios which do not contain all KYC attributes with bank details.

  • The chairperson of the trustee company should be an independent director.

Apart from this, there are various other factors that SEBI has mentioned with respect to enhancement of the obligations of the board of AMC.

Presently, the trustees primarily rely on the AMCs for ensuring compliance with the applicable rules. Two structures for trustees are permitted — corporate structure and board of trustees structure.

"It may be desirable to have a corporate form for trustees in view of perpetuity and financial independence. In this regard, it is proposed to provide a period of one year for existing trustees with a board of trustee structure to convert into a trustee company, from governance point of view and consistency in applicability of provisions." it said in the consultation paper.

The SEBI has sought comments from public till February 24, 2023 on these proposals.