Asset Management Companies (AMCSEBI in a circular said that they need to self-assess their risk management framework and practices and submit a report to SEBI along with the roadmap for implementation of the framework.
This exercise should be completed and required system The AMC should be in place to enable compliance of the circular with effect from January 1, 2022. AMCs may choose to do so earlier as well.
It said that the recommendations of the Mutual Fund Advisory Committee have been suitably incorporated in the Revised Risk Management Framework (RMF).
The review was required against the backdrop of significant developments in the mutual fund industry and financial markets as a whole, including product innovation, investments in new asset classes, distribution landscape, technological developments, investor penetration and awareness, growth. risk elements, among others.
“With the overall objective of managing the key risks involved in mutual fund operations, the Revised Risk Management Framework (RMF) shall provide a set of principles or standards, which shall, inter alia, include policies, procedures, risk management functions and roles and responsibilities. Management, AMC Board and Board of Trustees,” the market watchdog said.
Compliance with the Framework should be reviewed annually by the AMC and the review report should be placed before the Board and Trustees of the AMC for their consideration and appropriate directions, if any.
In addition, the trustees may forward their observations in the semi-annual trustee report to SEBI along with the findings and steps taken to mitigate the risk.
“The risk management will be an independent and exclusive function of the AMC,” Sebi said.
While creating a comprehensive framework, SEBI has segregated certain elements of the RMF into “compulsory elements” that should be implemented by the AMC and “recommendatory elements” that address other key industry practices that are to be considered for implementation. can go.
“The AMC shall set up an RMF for its mutual fund business”, SEBI said while outlining its features, which include that the RMF should be structured, efficient, timely, dynamic and flexible to identify new risks.
The RMF of a mutual fund will consist of four components- governance and organization, identification of risks, measurement and management of risk and reporting of risks and related information.
SEBI has also laid down the specific functions of various personnel and said that the policy of RMF will be approved by the AMC and the board of trustees.
The regulator has also called for establishing an organization-wide risk-conscious culture while defining the role of management.
SEBI has come up with the roles and responsibilities of the Board of AMCs and the roles of Trustees, Chief Executive Officer (CEO), Chief Risk Officer (CRO), Chief Investment Officer (CIO), other CXOs and Fund Manager.
SEBI has identified various types of scheme-specific and AMC-specific risks and laid down detailed guidelines for their measurement and management. Also, AMCs should have a robust framework for credit risk management, Sebi said.