Sebi tweaks risk management framework for mutual funds

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In order to ensure mutual funds maintain high standards, exercise due diligence, ensure proper care in their operations and to protect the interest of investors, market regulator securities and exchange board of India (Sebi) has come up with a revised risk management framework for fund houses.

The matter was deliberated in the Mutual Funds Advisory Committee (MFAC) based on the inputs received from the industry and the recommendations of MFAC have been accepted by the market regulator in the Risk Management Framework (RMF) for MFs.

The said framework will be effective from January 01, 2022, and asset management companies (AMCs) must perform a self-assessment of their RMF and practices and come up with a roadmap for implementation of the framework.

Sebi says AMCs must establish a RMF for its mutual fund business and that will be an integral part of the mutual fund’s processes and governance framework, at both the operational and strategic level.

The objectives of RMF, according to Sebi, should assist the management and the Board of Directors of both AMC and Trustees in demonstrating high standards of due diligence in daily management, promoting proactive management and early identification of risk.

The market regulator has also said risk management will be an independent and specific function of the AMC.

“There should be at least one CXO level officer identified to be responsible for the risk management of specific functions of the AMC/Mutual Fund. For

instance, there should be dedicated risk officers for various key risks such as Investment Risk (by Chief Investment Officer), Compliance Risk (by Chief Compliance Officer), Operational Risk (by Chief Operating Officer or similar functionary responsible for the respective functions overseen), Cyber Security (by Chief Information Security Officer),” said the circular issued by the regulator.

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