Mutual Funds in Advanced Stages of Developing Internal Fraud Detection Measures; says SEBI
According to the capital market regulator, the Securities Exchange Board of India (SEBI), the Rs. 50 trillion Indian mutual funds are in the final stages of carving out elaborate internal systems to track market malpractices such as front running and inside trading, etc.
The Chairperson of SEBI said, “The trade body of the MF industry – AMFI, is in the final stages of formulating the proposal. The whole process of developing this proposal has been time-consuming as it is not a simple process.”
She further said, “The big Fund houses would implement it in the first phase. She mentioned that after SEBI issues the final guidelines, the large fund houses that have a size base of Rs. 10,000 crores and above need to implement it within the 3 months. Other fund houses would require the implementation within the period of six months.”
In April, SEBI contemplated changing the mutual fund regulation to include the formal method for detection of malpractices such as frontrunning, insider trading, and so on.
Normally, when cases of market abuses like frontrunning are detected, SEBI backed by data, figures and trends starts investigations that indicate towards a potential fraud.
However, SEBI has thought over the past year that fund houses should have measures better than what they have at present to avoid and report cases of manipulation in the market. AMFI is been working on seeking consensus regarding the internal working of the parameters to be set in the MF industry. One the report is submitted to SEBI, there are expectations that the final guidelines will be released by SEBI.
