The Hindu Business Line : Risk management system must for AMCs, trustee cos

THE Securities and Exchange Board of India (SEBI) has made it mandatory for all the asset management companies (AMCs) and trustee companies of mutual funds to adopt risk management practices, following the recommendations of the Association of Mutual Funds in India (AMFI).

AMFI, in association with PricewaterhouseCoopers (PwC), has made certain recommendations to ensure minimum standards of risk management system for all mutual funds in various areas of their operations such as fund management, operations, customer service, marketing and distribution, and disaster and business contingency.

Disclosing this in the latest update of AMFI, its Chairman, Mr A.P. Kurien, said the systems and procedures suggested by SEBI in this regard were "an appropriate step in the direction of protecting the interest of the investors. The AMFI committee on risk management will continue to provide its assistance to the members in this area."

According to the step-by-step approach spelt out by SEBI to implement the risk management system, the AMCs and trustee companies were required to review the risk management systems and report them to SEBI on a continuous basis.

They were also required to submit quarterly compliance and half yearly reports on the progress achieved by the fund on the risk management practices.

While giving time till April 1, 2003 to fully implement the risk management system prescribed, SEBI has advised them to make it part of their internal audit from the next fiscal year onwards. The internal auditors would have to check the risk management system on a regular basis and certify the adequacy of the system.

The risk management practices advised by the market regulator were covered in the Operating Manual under three major categories.

While the first category deals with the existing industry practices, the second prescribes practices to be followed on mandatory basis such as assignment of risk management function to compliance officer or internal risk management committee or to an external agency, taking of insurance cover by mutual funds against certain risks and disaster recovery plan. The third category of the manual covers the best practices to be followed by the mutual funds.

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