SEBI extends deadline for implementation of Risk MGMT framework till April 2022

The implementation was to come into effect from January 1, 2022. Meanwhile, the watchdog has issued guidelines on norms for use of pool accounts by mutual funds as well as investment in Bill Re Discounting Scheme (BRDS).

All these decisions have been taken after receiving representations from the Association of Mutual Funds in India (AMFI). As per the rules, the trustees and asset management companies (AMCs) have to ensure that the assets and liabilities of each scheme are separate and secure from other schemes of the mutual fund. Also, the bank accounts and securities accounts of each scheme should be separate and encircled.

However, the securities or funds held in pool accounts at the mutual fund level are duly segregated scheme-wise and properly reflected in the books of the respective schemes at the end of the day.

SEBI said that mutual funds can use pool accounts only for those transactions which are executed at the mutual fund level due to certain operational and regulatory requirements.

This is subject to certain conditions, including that AMC’s internal policies shall be approved by their respective boards and trustees. Internal policies should ensure that adequate operating procedures and internal controls are in place to separate and encapsulate each plan’s assets and liabilities. In addition, there should be segregation and ring-fencing of securities and bank accounts.

Pool accounts for both securities and funds must have zero balance at the end of the day.

If the funds lying in the pool bank account of the mutual fund are not identified for reasons beyond the control of an AMC, the same will be transferred to the respective scheme account, from the time such transactions are identified.

At no time will the securities or funds of one scheme be used for other schemes.

According to SEBI, the responsibility of ensuring segregation and ring-fencing of bank accounts and securities accounts as well as assets and liabilities of each scheme will rest with the AMC and the board of trustees.

In its semi-annual report submitted to SEBI, the trustees of an AMC shall confirm that the assets and liabilities of each scheme are segregated with their bank accounts and securities accounts on a daily basis excluding undisclosed transactions of funds during the half yearly period. There are ring-fenced. – The duration of the year.

The entire system will be audited on a half-yearly basis by an auditor appointed by the trustees.

“Overnight Funds may deploy not more than 5 per cent of the net assets of the scheme in Government securities and/or T-bills, with residual maturity of up to 30 days, for the purpose of placing it as margin and collateral. Certain transactions ,” SEBI said. In addition, SEBI has issued norms for investment in Bill Re Discounting Scheme (BRDS).

SEBI said the single issuer limit and group exposure limit would be calculated at the issuing bank level as BRDS are issued with recourse to the issuing bank.

Further, it was noted that investment in BRDS by debt schemes of mutual funds would be treated as exposure to the financial services sector for the purpose of sector exposure limits.

Under the rule, investments in government securities, Treasury bills, derivative products such as interest rate swaps (IRS), interest rate futures (IRFs) besides other non-rated debt and money market instruments can be made only in instruments such as bill re-decounting. Is. and term bills. These are generally not rated and for which separate investment criteria are not provided in the mutual fund regulations.

Further, the investment of mutual fund schemes in such instruments shall not exceed 5 per cent of the net assets of the schemes. SEBI said that these rules will come into force from the 30th day of the circular, which has been implemented on Friday.

The Risk Management Framework for Mutual Funds, the implementation of which has now been extended till April 1, 2022, has certain mandatory and recommendatory elements. The AMC is required to self-assess its risk management framework and practices and submit a report to SEBI along with the roadmap for its implementation.

With regard to the two-tier structure for benchmarking certain categories of schemes, SEBI had said that the first tier benchmark would reflect the category of the scheme and the second tier benchmark would reflect the investment style/strategy of the fund manager. category. The second tier benchmark is optional and will be decided by the AMC as per the investment style/strategy of the index. The implementation of benchmarking requirements has also been extended till April 1, 2022. The new benchmarking guidelines will be applicable for schemes such as debt-oriented, equity-oriented, hybrid and solution, thematic, index funds and exchange-traded funds (ETFs). and Fund of Funds Scheme (FOF).

This story has been published without modification in text from a wire agency feed. Only the title has been changed.