Sebi chief Madhabi Puri Buch insists on setting up ethics committee to check misconduct in MF industry

Securities and Exchange Board of India (Sebi) chairperson Madhabi Puri Buch on Tuesday said that though the mutual funds sector is considered "safe", the industry needs to form an ethics committee as the biggest risk to the growth is individual misdemeanor.

Buch, while opening the Association of Mutual Funds (AMFI) in India’s new office at Mumbai's Bandra-Kurla complex, said if the AMFI fails to adopt self-regulation measures, Sebi will have step in to ensure investor protection.

“Today where we are as an industry, we have a very strong foundation. Now is the time to build a superstructure on top of this. I think the only thing that is a risk to the industry is individual misconduct...if we find it, unfortunately as a regulator we have to step in," Buch said at an event.

Talking about the proposed ethics committee of AMFI, Buch said that the panel is envisioned to be able to take action on a self-regulatory basis against individuals who are found involved in misconduct such as front-running and insider trading.

“It will not have judicial powers, but a voluntary alignment of the industry to work for the collective good. And if that means that the ethics committee has to call somebody and say this is bad behaviour and we will all have to pay for your bad behaviour, then that is by its voluntary nature. If that entity says ‘we do not care’, it is free to leave AMFI,” Buch said.

Buch emphasised that the mutual funds sector is built on strong foundations and that the issues observed during the pandemic period have been addressed. She expressed confidence in the industry's potential to expand from its current size of Rs 40 lakh crore to around Rs 100 lakh crore.

The Sebi chairperson also highlighted the importance of transparency as a core value in the mutual funds industry. "Transparency is this industry’s strong point," she said and stressed that the industry should focus on upholding the spirit of the law.

Further, Buch added that technology is an important aspect that helps the industry to function in an efficient way and be cost effective at the same time.

She noted that the MF industry itself has not invested in building any core technology.
"The industry itself has not invested much in building core technology. I worry for you on that count. I would urge you to invest in the systems and technology," she added.

(With agency inputs)

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