Roles and responsibilities of Trustees and board of directors of Asset Management Companies (AMCs) of Mutual Funds
Summary
This circular specifies the core responsibilities of Trustees and the Board of Directors of Asset Management Companies (AMCs) in Mutual Funds to protect unitholder interests. It mandates that Trustees exercise independent due diligence on key areas such as fee fairness, performance review, and conflict management while allowing reliance on third-party fiduciaries for other duties. Additionally, it establishes requirements for Unit Holder Protection Committees, the appointment of independent directors as Chairpersons of Trustee companies, and annual meetings between Trustee and AMC boards. This section outlines the membership constitution, meeting protocols, and reporting obligations for the Unitholder Protection Committee (UHPC). It details the specific powers and responsibilities of the UHPC regarding investor complaints, education, regulatory compliance, and conflict management. Finally, it mandates the establishment and review of Unitholder Protection metrics to monitor AMC performance.
Text
The Trustees shall exercise independent due diligence on certain “core responsibilities” including ensuring fairness of fees, reviewing AMC performance, preventing mis-selling, ensuring operations are not unduly influenced by sponsors, preventing unfair advantages to associates, addressing conflicts of interest, and preventing misconduct.
The Trustees shall take steps to ensure that there are system level checks in place at AMCs’ end to prevent fraudulent transactions including front running by employees, form splitting/ mis-selling by distributors etc. The Trustees shall review such checks periodically.
The Trustees and their resource persons shall independently evaluate the extent of compliance by AMCs vis-à-vis the identified key areas and not merely rely on AMCs’ submissions /external assurances.
AMCs shall put in place suitable mechanisms/systems to generate system based information/data/reports for evaluation and effective due diligence by the Trustees. AMCs shall provide alerts based automated reports to the Trustees as may be required by the Trustees.
The Trustees shall ensure that suitable mechanisms/systems are put in place by the AMCs to generate system based information/data/reports for evaluation and effective due diligence by the Trustees. The Trustees shall also ensure that the AMCs periodically review such systems.
AMCs shall submit exception reports/analytical information to the Trustees, that add value to the process of exercising their oversight role. The Trustees shall evaluate the nature and adequacy of the alerts and the manner of dealing with such alerts by AMCs.
The Trustees shall require the AMCs to furnish, in a true and fair manner, reports and alerts based on pre-decided parameters including but not limited to the areas specified as core responsibilities at para 4.1.1 above, for taking appropriate action.
The Trustees shall periodically review the steps taken by AMCs for folios which do not contain all the Know Your Client (KYC) attributes / updated KYC attributes and ensure that the AMCs take remedial steps necessary for updating the KYC attributes especially pertaining to bank details, PAN, mobile phone number.
In order to enable Trustees to focus on the core responsibilities, for responsibilities other than the core responsibilities mentioned at para 4.1, the Trustees may rely on professional firms such as Audit Firms, Legal Firms, Merchant Bankers, etc (collectively referred to as “third party fiduciaries”) for carrying out due diligence on behalf of the Trustees.
The responsibilities other than core responsibilities, for which the Trustees may avail services of third party fiduciaries, include overseeing independent management, discharging custodian role, reviewing AMC networth, and ensuring transactions comply with the trust deed.
As per Regulation 25(24) of MF Regulations, the AMC is required to constitute a Unit Holder Protection Committee (“UHPC”) in the form and manner and with a mandate, as may be specified by SEBI.
The UHPC shall be responsible for protection of interest of unit holders, ensuring adoption of sound market practices, and compliance with laws and regulations.
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Source: SecMarx — Roles and responsibilities of Trustees and board of directors of Asset Management Companies (AMCs) of Mutual Funds. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.