Asset Management Companies to mandatorily adopt Institutional Mechanisms, as prescribed by SEBI

The Securities and Exchange Board of India (“SEBI”) has recently on August 05, 2024, published a circular vide circular number ‘SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/107’ (“Circular”), whereby, SEBI has mandated all Asset Management Companies (“AMC”) to incorporate certain structured institutional mechanisms to proactively identify and deter potential market abuse (“Mechanisms”).

SEBI has further stated that such Mechanisms to be incorporated shall consist of surveillance systems, internal control procedures along with requisite escalation processes. In that regard, SEBI vide the Circular has provided certain criterion that these Mechanisms shall ensure, including but not limited to the following:

1. the AMC appointing dedicated officers who shall be responsible and accountable for implementation of such Mechanism;

2. the AMC to implement alert generate processes and thereby, duly consider and review all such alerts along with undertaking necessary action against such alerts in real time;

3. that AMCs shall develop adequate policies and procedures to undertake examinations along with formulating a whistle blower policy;

4. the AMC shall ensure that an escalation process has been duly established in order to intimate specified officers of the company regarding such market abuse; and

5. the AMC shall ensure that there are procedures established to review such aforementioned procedures and systems, from time to time.

SEBI has also mandated that certain systems shall be developed by the stock exchanges and depositories, to enable effective data sharing with AMCs. Furthermore, AMCs shall duly report all instances of examined alerts and the action taken by the AMCs in that regard, to SEBI.

Lastly, in order to effectuate uniform implementation of the Circular, the Association of Mutual Funds in India (AMFI) shall along with SEBI, publish detailed standards, within 15 (Fifteen) days from the date of this Circular.