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SEBI diktat to bring parity between listed, unlisted AMCs

SEBI diktat to bring parity between listed, unlisted AMCs

Capital markets regulator has made it mandatory for mutual fund houses to form an audit committee at the AMC level. Audit committees are mandatory for listed companies.

Currently, there are more than 40 fund houses in the country but only three – UTI AMC, HDFC AMC & Nippon Life India Asset Management - are listed on the stock exchanges.  Currently, there are more than 40 fund houses in the country but only three – UTI AMC, HDFC AMC & Nippon Life India Asset Management - are listed on the stock exchanges.

The recent diktat by the Securities and Exchange Board of India (SEBI) for putting in place an audit committee at all asset management companies (AMCs) will bring parity between those that are listed and the majority that are unlisted, and hence, are under no compulsion to have such a panel in place, industry insiders say.

Earlier this week, the capital markets regulator issued a circular, stating that all mutual fund firms should form an audit committee at the fund house level even as such committees are already mandatory at the trustee level.

"Currently, the requirement for an Audit Committee is at the level of trustees of Mutual Funds. The working group constituted for the purpose of the regulatory revamp exercise of SEBI (Mutual Funds) Regulations, 1996 and various circulars issued thereunder suggested that an Audit Committee may be constituted at AMC level… taking into account the recommendation of MFAC (Mutual Fund Advisory Committee) and the feedback received from the industry, it has been decided that the AMCs of mutual funds shall be required to constitute an Audit Committee," stated the SEBI circular.

The circular further stated that the audit committee would be responsible for oversight of financial reporting process, audit process, company's system of internal controls, compliance to laws and regulations and other related process, with specific reference to operation of its mutual fund business.

Industry players welcomed the move and said that while many fund houses have voluntarily put in place such a committee as part of corporate best practices, the latest diktat would bring parity between the listed and unlisted fund houses.

"For a listed company, an audit committee is mandatory as per the regulatory framework," says G Pradeepkumar, CEO, Union AMC.

"Most of the fund houses are private companies and hence such a committee is not mandatory even though it was mandatory at the trustee level. It is a very good move by SEBI as an audit committee serves as a serious control tool for management and the board in the overall functioning of the fund house. If there are any serious issues, then those can be conveyed to the board by the audit committee. As part of our best practices, we already have an audit committee in place," he adds.

Currently, there are more than 40 fund houses in the country but only three – UTI AMC, HDFC AMC & Nippon Life India Asset Management - are listed on the stock exchanges.  

Meanwhile, the capital markets regulator has also laid down the finer details in terms of composition of the audit committee, its scope of work, role & responsibilities and the frequency at which such panels should meet.

The requirement will come into effect from August 1.