Regulatory framework for the roles and responsibilities of trustees and the board of directors of asset management companies

Securities and Exchange Board of India (SEBI) have established regulatory framework for the roles and responsibilities of trustees and the board of directors of asset management companies (AMCs). The framework provide following guidelines:

Core Responsibilities of Trustees

Under the amended SEBI (Mutual Funds) Regulations, trustees are mandated to exercise due diligence on specific “core responsibilities.” These include ensuring fairness in fees and expenses charged by AMCs, reviewing AMC performance vis-à-vis peers or benchmarks, preventing mis-selling and increasing asset management integrity, mitigating conflicts of interest, avoiding unfair advantages for associates or group entities, addressing conflicts of interest, and preventing market abuse. These responsibilities empower trustees to act as fiduciaries, safeguarding the interests of unit holders and ensuring ethical practices within the mutual fund industry.

Third Party Assurances

To enable trustees to focus on their core responsibilities, they can rely on professional firms, such as audit firms, legal firms, and merchant bankers, as third-party fiduciaries. These entities conduct due diligence on behalf of trustees, ensuring compliance with regulations, operational independence of AMCs, custodial responsibilities, and net worth reviews. This approach enhances transparency and accountability, reducing the burden on trustees while maintaining the integrity of the mutual fund ecosystem.

Unit Holder Protection Committee (UHPC)

SEBI has mandated the establishment of UHPCs within AMCs to protect the interests of unit holders. The committee is responsible for overseeing mutual fund schemes, adopting market best practices, ensuring compliance with regulations, and addressing investor grievances. UHPCs monitor product investments, sales, marketing, conflict management, and investor awareness. By involving independent directors and regularly reporting to the board of directors, UHPCs provide an additional layer of oversight, promoting investor confidence and protecting their interests.

Appointment of Independent Directors

The regulations also require that trustee companies appoint independent directors as chairpersons of their boards. This measure aims to enhance governance and ensure unbiased decision-making within trustee companies. By incorporating independent perspectives, the boards can effectively fulfill their fiduciary responsibilities and maintain the highest standards of transparency and accountability.

Meetings and Reporting

To facilitate effective communication and decision-making, the board of directors of AMCs and trustee companies must hold regular meetings. At least one meeting per year is mandated to discuss mutual fund-related issues and chart the future course of action. The UHPC reports its findings and recommendations to the board, ensuring transparency and alignment with investor interests.