Latest news with #AkshayaBhansali
Mint
07-07-2025
- Business
- Mint
Sebi proposes sweeping changes for fund managers, AMC overhaul amid conflict of interest concerns
In a move that could significantly reshape India's mutual fund landscape, the Securities and Exchange Board of India (Sebi) has proposed a revamp of rules governing asset management companies (AMCs). The key proposal seeks to amend Regulation 24(b) of the Sebi (Mutual Funds) Regulations, 1996, which currently restricts AMCs from managing only broad-based pooled assets. Broad-based pooled assets refer to funds with a large investor base—typically mutual funds involving lakhs of retail investors. AMCs seeking to serve non-broad based clients (such as funds with fewer than 20 investors or where one client contributes over 25% of the corpus) currently need a separate Portfolio Management Service (PMS) licence. Specifically, Regulation 24(b) restricts AMCs from undertaking any business activity other than in the nature of management and advisory services provided to pooled assets, including offshore funds, insurance funds, pension funds, provident funds, or such categories of foreign portfolio investor, as may be specified by Sebi. A PMS offers customized investment management for high-net-worth individuals and institutional clients. This existing regulatory structure, implemented in 2011 based on committee recommendations, was designed to prevent conflicts of interest, situations where an individual or organization has competing interests that could compromise their impartiality due to differential fee structures. The Indian mutual fund industry, through its representative body, the Association of Mutual Funds in India (AMFI), has consistently advocated for a review of Regulation 24(b). Seeking flexibility Industry stakeholders argue that the broad-basing requirement has proven to be a barrier, limiting their business opportunities and not providing a 'level playing field"—meaning they face competitive disadvantages compared to other intermediaries engaged in providing management and advisory services to non-broad based funds. AMCs contend that they possess the necessary domain expertise to manage a broader spectrum of pooled assets and are seeking greater operational flexibility as an 'ease of doing business initiative". Allowing AMCs to provide management and advisory services to both broad-based mutual funds and these specialized non-broad based funds from the same entity may raise several critical potential conflicts of interest, which Sebi addressed in its consultation paper of Monday. Sebi raised concerns that AMCs might be incentivized to charge higher fees from their pooled non-broad based clients. This could lead to reallocation of skilled personnel and resources away from retail mutual funds, potentially resulting in suboptimal outcomes or unfair cost allocation to mutual fund investors. According to legal experts like Akshaya Bhansali, partner at Mindspright Legal, the differentiation in fee structures between investment management and advisory activities, particularly for pooled non-broad based funds, may skew AMCs' incentives toward higher revenue opportunities, potentially compromising investor interests. Another significant risk involves fund managers using confidential information from mutual fund trades to benefit non-broad based clients by front running or taking opposite positions, potentially manipulating market prices. Sebi also feared that AMCs could potentially exploit inside information obtained through mutual fund operations—to unfairly benefit their pooled non-broad based clients. Experts added that the risks of contrary trade positions and front-running are evident and highly relevant in today's market, with instances rising markedly over the past five years. 'Allowing AMCs to manage pooled non-broad-based funds could exacerbate these issues by enabling misuse of privileged information to favour larger clients," Mindspright Legal's Bhansali said. Transfers between funds Another concern was also regarding the potential transfer of low-quality debt assets or assets likely to default from the portfolio of a pooled non-broad based investor to a broad-based fund, undermining fair treatment and fiduciary duty. To counteract these risks, Sebi outlined a series of checks and balances such as upper and lower limits on fees and curbs on performance-linked fees;separation of fund managers and back-office teams, unless portfolios are 70%+ identical; application of a six-month contra trade rule and strict internal trade allocation policies; prohibiting transfer of securities between mutual funds and non-broad based funds; and, upholding insider trading rules and ensuring that sensitive data from mutual funds isn't misused. Lawyers advising AMCs noted that introducing a 'cap and floor' on fees charged for managing such funds helped establish clear boundaries, preventing excessive charges or undercutting. 'Aligning fee structures more closely with those of mutual fund schemes can further promote fairness, reduce conflicts of interest, and encourage more efficient resource allocation across fund activities without distorting cost structures," Bhansali said. AMCs will also be required to ensure that activities for pooled non-broad based funds do not stem from information obtained through mutual fund operations. Bhansali said this measure is prudent to deter insider trading, to promote fair practices, and protect the mutual fund industry from front-running, insider trading, and related abuses. Ketan Mukhija, partner at Burgeon Law, said the proposed relaxations could enable AMCs to diversify revenue streams and expand into allied financial services. 'It may also raise concerns about conflict of interest, resource diversion, and investor protection—necessitating strong internal controls, clear segregation of activities, and strict regulatory oversight to ensure mutual fund investors are not adversely impacted," he said. Sebi has called for public feedback till 28 July.
Mint
02-07-2025
- Business
- Mint
More transparency, more trouble? Sebi's revised disclosures rules divide experts
The Securities and Exchange Board of India's revised framework for disclosures related to related party transactions (RPT) has received mixed response from legal and governance professionals. While the updated rules are seen as a step towards greater transparency, experts have raised questions over its legal basis and pointed to additional compliance complexity and administrative burden it could involve. The new disclosure regime was notified through a circular on 26 June and will be effective from 1 September. Under Regulation 23 of Sebi's Listing Obligations and Disclosure Requirements (LODR), listed companies must obtain approval from their audit committees—and in case of material transactions, from shareholders as well—for related party transactions. Sebi has now introduced a tiered format of disclosures under three categories: Part A covers all transactions; Part B applies to seven defined types, including loans and guarantees; and Part C mandates additional disclosures for material transactions. 'The revised RPT Industry Standards, though aimed at improving transparency, raise important legal and structural concerns," said Akshaya Bhansali, partner at Mindspright Legal, questioning the legal tenability of Sebi's new framework. 'They overlay the existing frameworks under the Companies Act and Sebi's LODR with additional disclosure formats and a flat ₹1 crore threshold that are not grounded in statutory text," Bhansali added. 'This creates a regulatory layering that risks confusion over which standard prevails in case of inconsistency." Bhansali also flagged a departure from regulatory convention. 'The risk here is that substantive obligations are being introduced through a circular, without the procedural safeguards required under Sebi's own 2025 regulation-making process," she said, referring to the role played by industry associations in drafting the norms. The new disclosure regime was developed in consultation with the Industry Standards Forum comprising the Associated Chambers of Commerce and Industry of India (ASSOCHAM), Confederation of Indian Industry (CII), and Federation of Indian Chambers of Commerce and Industry (FICCI). 'Stemmed from past abuses' The revised standards mandate extensive information for audit committees and shareholders, including the nature of the transaction, historical dealings with the related party, valuation details, and management certification that the deal is in the company's interest. Companies are permitted to redact commercially sensitive details, provided the audit committee affirms that decision-making will not be impaired. Some industry professionals welcomed the added transparency. 'The new information requirements represent greater transparency and accountability for related party transactions," said Clarence Anthony, founder of law firm Clarence & Partners. 'The audit committee now receives a certification from management that the proposed transaction is in the company's interest, along with robust price justification and details of past transactions, with such related party." He added: 'Now the shareholders too will receive all information provided to the audit committee (where earlier they only received a summary), resulting in no information being lost through the various stages of approval." Ketan Dalal, managing director at structuring and advisory firm Katalyst Advisors, noted that while the reforms aim to protect minority shareholders, they stemmed from a handful of past abuses. 'Some outlier situations where promoters' interest wasparamount or fraudulent, unfortunately led to regulatory cholesterol," he said. 'The revised industry standards seek to achieve that reasonable balance between interests of minority shareholders and relative ease of doing business." Burdens and exemptions Dalal, however, pointed to areas where Sebi's latest framework may prove burdensome. 'Some aspects still seem quite onerous—for example, where the related party's financial statements are not available for the immediately preceding year… the company shall provide financial extracts certified by the related party." Still, he welcomed key exemptions. 'The circular has fortunately clarified that it does not apply to transactions between the listed company and its wholly owned subsidiaries, since there is no leakage," he said. Dalal also appreciated Sebi's decision to limit application to omnibus approvals. 'The revised provision will help to save time for audit committees to focus on other matters, especially quarterly results." However, Dalal cautioned that governance responsibilities are rising. 'Audit committee members would need to have the inclination and time to understand business issues better, since RPTs require more in-depth commercial understanding. A related aspect will be the need to compensate them better, especially those on audit committees." He also flagged the increased burden on top executives. 'The requirement for a key managerial personnel to certify that RPTs are in the interest of the company will cast an onerous responsibility on them and should lead to better governance," Dalal said. 'However, KMPs (key managerial personnel) could become overly cautious."
Mint
24-06-2025
- Business
- Mint
Sebi proposes tougher governance norms for market institutions
The capital markets regulator has proposed new measures, including the appointment of board members for specific roles, to strengthen governance of stock exchanges, clearing corporations and depositories. The regulator seeks to reinforce the public-interest role of the market infrastructure institutions (MIIs) over their commercial objectives, according to a consultation paper released by the Securities and Exchange Board of India (Sebi) on Tuesday. 'MIIs have seen a rapid increase in investor base and volumes, as well as a growing network of intermediaries associated with them... a significant growth in revenue and profitability, and they enjoy high profit margins,' the regulator noted in its consultation paper. The proposals focus on three key areas: Sebi recommends the mandatory appointment of two executive directors (EDs) on the boards of MIIs to oversee critical functions such as trading, clearing, settlement, compliance, risk management and investor grievance redressal. These EDs would be designated as key management personnel (KMPs) and hold comparable stature to the managing director (MD). A third ED may be appointed at the institution's discretion for business development. The paper proposes codifying the roles and responsibilities of MDs, EDs and other key officers such as the chief technology officer (CTO) and chief information security officer (CISO). Currently, these responsibilities are either distributed across departments or not formally defined in the regulations. To reduce conflicts and improve accountability, Sebi has proposed restrictions on board roles. MDs of MIIs would only be allowed to serve as non-executive directors in charitable entities or unlisted government companies not engaged in commercial activities. EDs would be allowed to sit only on the boards of MII subsidiaries. This approach mirrors similar restrictions in the banking sector. 'With the surge in retail investors, the underlying concern is that MIIs must not operate without fixed accountability of KMPs. This consultation paper is a step in that direction,' said Diviay Chadha, Partner at Singhania & Co. 'MIIs—regardless of their status under the Companies Act—will be required to amend their charter documents and board composition to comply with the final regulations.' While the proposals aim to reduce potential conflicts of interest, some experts flagged possible unintended consequences. 'This prohibition on EDs of MIIs from serving on boards of any company, except MII subsidiaries, is necessary in principle to ensure accountability,' said Akshaya Bhansali, Partner at Mindspright Legal. 'However, from a broader market perspective, it may affect the availability of independent directors for listed companies.' These proposals come at a critical time as Sebi continues to review the National Stock Exchange's (NSE) long-delayed IPO application. NSE's public listing—first proposed in 2016—has faced several regulatory hurdles. In a letter to NSE dated 28 February, Sebi responded to the exchange's IPO application by stressing that 'the culture of giving primacy to public interest over commercial interest must run deep at the operating level as well.' Bhansali, however, said, 'These governance changes should not directly influence Sebi's review of the NSE IPO. They are not targeted solely at NSE. However, unless otherwise clarified, these norms could become de facto expectations or preconditions for approval.' Public comments on the consultation paper are open until 15 July.
