sebi:NP/JS/AO/4-6/2016
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Facts / Headnote
Guilty; penalty imposed
Provisions invoked
- s. 15
- s. 15D
Regulations
- Reg. 25
- Reg. 10
- Reg. 10(a)
- Reg. 199
- Reg. 9
- Reg. 25(18)
Parties
- Franklin Templeton Mutual Fund
- Franklin Templeton Trustee Services Private Limited
- Franklin Templeton Asset Management (India) Private Limited
Holding
The noticees were found guilty of constituting an "Informal Group" as Investment Committee in violation of SEBI Circular dated September 30, 2002 read with Regulation 10(a) of SEBI (Mutual Funds) Regulations, 1996, and of including the International CIO (based outside India) on the Investment Committee in violation of Regulation 25(18) of SEBI (Mutual Funds) Regulations, 1996. A penalty of Rs. 5,00,000 for each violation, totalling Rs. 10,00,000, was imposed jointly and/or severally on the three noticees under Section 15D(b) of the SEBI Act.
Full text
Page 2 of 15 violation of SEBI Circular No. MFD/CIR/15/19133/2002 dated September 30, 2002. It has been alleged that having an “informal Group” as IC tantamount to not having an IC. Further the inspection report also pointed out that, “SAI of Franklin Templeton Mutual Fund states that Investment Committee comprises of International CIO, CIO, Head – Risk Management and Portfolio Managers. The presence of the international CIO (based outside India in USA) on the Investment Committee is not in compliance with Regulation 25 (18) of SEBI (Mutual Funds) Regulations, 1996.
Page 3 of 15 30, 2002, in the section ‘existing industry practice’, AMCs should establish committees for Investment, Valuation and Audit. The functions of the Investment Committee as per the said risk management Circular are: laying down the Mutual Fund’s investment policy and philosophy with regard to different asset classes, sectors, counterparties, etc., as defined in the Investment Policy Manual reviewing performance and positions with regard to the objectives of the schemes Researching and reviewing counterparties and debt issuers with regard to credit risk.”
Page 4 of 15 alia requires the AMC to carry out all its operations including investment operations within the territory of India. It may be noted that regulation 25(18) was notified on August 30, 2011 and the time period of one year was provided to AMCs to move their operations within the territory of India. Franklin Templeton AMC vide letter dated August 08, 2012 had sought exemption from the aforesaid SEBI Regulation 25(18).However, SEBI had only granted extension of 3 months for complying with the provisions of aforesaid Regulation. In view of the above Dr. Mark Mobius, who was acting as a fund manager (based outside India) for 2 schemes of Franklin Templeton Mutual Fund, stepped down from his position of fund manager on November 23, 2012. Presence of the international CIO (based outside India) on the Investment Committee was not in compliance with Regulation 25 (18) of SEBI (Mutual Funds) Regulations, 1996. This becomes even more significant in the background of the earlier resignation of Dr. Mobius as fund manager to comply with Regulation 25(18); as the AMC has violated this regulation even after this significant event in the context of the said regulation.”
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Source: SecMarx — sebi:NP/JS/AO/4-6/2016. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.