Sebi publishes revised risk management framework for FMs

In addition, the trustees can report findings and actions taken to mitigate the risk and their comments to Sebi in the semi-annual reports of the trustees.

Market regulator Sebi on Monday released a revised risk management framework for mutual funds with some mandatory and recommended elements.

Asset management companies (AMS) should conduct a self-assessment of their risk management framework and practices and submit a report to Sebi along with the roadmap for implementing the framework, said Sebi in a circular.

This exercise must be completed and the necessary arrangements must be in place in the AMCs to allow compliance with the circular from January 1, 2022. The AMCs can also choose to do so even before.

The recommendations of the mutual fund advisory committee have been properly incorporated into the revised risk management framework (RMF), he added.

The review was made necessary in the context of significant developments in the mutual fund industry and the financial markets as a whole, particularly in the area of ​​product innovation, investing in new classes assets, the distribution landscape, technological evolution, investor penetration and awareness, increase in risk elements, among others.

“With the overall objective of managing the main risks involved in the operation of mutual funds, the revised risk management framework (RMF) should provide a set of principles or standards, which include among others policies, procedures, risk management functions and roles and responsibilities of management, AMC’s board and board of directors, ”said the market watchdog.

Compliance with the framework should be reviewed annually by the CMA and the review reports should be submitted to the CMA Board of Directors and Trustees for review and appropriate guidance, as appropriate.

In addition, the trustees can report findings and actions taken to mitigate the risk and their comments to Sebi in the semi-annual reports of the trustees.

“Risk management will be an independent and specific function of AMC,” Sebi said.

Establishing a detailed framework, Sebi has separated some elements of the RMF into “mandatory elements” which should be implemented by AMCs and “recommended elements” which address other industry leading practices that may be considered for implementation. implemented.

“AMCs should establish an RMF for their mutual fund business,” Sebi said, highlighting its features, including the fact that the RMF should be structured, efficient, timely, dynamic and flexible enough to identify new risks.

The UCIs RMC will include the four components: governance and organization, risk identification, risk measurement and management, and risk communication and related information.

Sebi also defined the specific functions of various staff and said the RMF policy must be approved by the CMA board and directors.

The regulator, while defining the role of management, also called for establishing a culture of risk awareness across the organization.

Sebi defined the roles and responsibilities of the AMC Board of Directors and Directors, Chief Executive Officer (CEO), Chief Risk Officer (CRO), Chief Investment Officer (CIO), the role of other CXOs and the fund manager.

Sebi also identified various types of plan and CMA specific risks and set out elaborate guidelines for their measurement and management. In addition, AMC must have a strong framework for managing credit risk, Sebi said.

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