MUMBAI: The Securities & Exchange Board of India (SEBI) on Monday proposed to ease the broad-basing requirement for asset management companies (AMCs) and permit them to serve pooled non-broad-based funds subject to strong governance and regulatory controls.
Currently, Regulation 24(b) of the MF Regulations permits an AMC to provide management and advisory services to pooled assets which are broad based in nature. AMCs desirous of providing management and advisory services to non-broad-based funds need to mandatorily obtain PMS licence to do the same.
The regulator has taken into consideration the submission of AMCs that these regulations have proven to be a barrier and do not provide a level playing field to them vis-à-vis other intermediaries engaged in providing management and advisory services to non-broad-based funds.
In Monday’s circular, Sebi noted that during discussions, the industry also highlighted that there are opportunities related to management and advisory of pooled assets, wherein the domain expertise is with AMCs. “However, restrictions due to the broad basing criteria do not permit AMCs to take up such mandates,” it said.
Sebi has sought public comments on the circular by July 28.
Sebi has also proposed expansion of permissible activities for AMCs and their subsidiaries, allowing them to undertake activities ancillary to their core operations such as distribution and marketing services. These activities must fall within the regulatory oversight of any domestic regulator or foreign regulator/jurisdictions, ensuring that all such operations remain within the ambit of a recognized regulatory framework, it said.
The circular has addressed four conflicts that may arise if these norms are relaxed. These are: Diversion of resources and fees charged, contra-trade and front running, trading based on inside information and inter-business transfer of assets on unfavourable terms to mutual fund investors.
AMCs will be required to ensure that resources dedicated to pooled non-broad-based funds are proportionate to fees earned from such funds through investors, and that mutual fund (MF) investors are not made to bear the cost of such products. Sebi may prescribe a range of fees for AMCs to charge from their pooled non-broad-based funds.
The key personnel responsible for investment decision-making and fund management will also need to be segregated. The fund manager may be common only if investment objectives and asset allocation are the same and replicated across all the funds managed by the fund manager, the circular said.
Source: The Financial Express
