Sebi bars FWCS, its directors from markets for 1 year for unauthorised advisory services Markets regulator Sebi has barred Fingravy Wealth Creation Services (FWCS) and its directors from the securities markets for 1 year for providing unauthorised advisory services. The order came after Sebi passed an ex-parte interim order dated January 14, 2020 against FWCS and its present and past directors — Dhiraj Gupta, Sumit Kumar, Hemanchal Singh, Ravindra Singh and Ashutosh Sharma. Also Read: Sebi bars former MD and CEO of MSEI Udai Kumar for six months The regulator also noted, noticees have been restrained from accessing the securities markets until further orders through the interim order. They were also directed to cease and desist from acting as an investment advisor until further orders. In its final order, the regulator found FWCS and its directors have not disputed the findings of the interim order in respect of the company carrying out investment advisory services without obtaining registration from Sebi as an ‘investment advisor’. The aggregate amount of Rs 6.13 crore that has been collected by FWCS by providing unregistered investment advisory services for the period from January 2018 to August 2019, Sebi said in the latest order on Tuesday. Sebi has directed noticees to refund, “jointly and severally”, within three months, the money received from clients in respect of their unregistered investment advisory activities. Also, the regulator restrained them from accessing or dealing in the securities markets for a period of 1 year or till the expiry of 1 year from the date of completion of refunds to investors along with depositing of balance amounts, whichever is later. In addition, they shall not undertake investment advisory services or any activity in the securities market without obtaining a certificate of registration from Sebi, either directly or indirectly, during or after the expiry of the period of debarment period, the order said. Meanwhile, in a separate order, the regulator slapped a fine of Rs 5 lakh on an entity for violating the regulatory norms in the matter of Vivimed Labs Ltd. In another order, the regulator imposed a fine of Rs 2 lakh on Investmaxima Advisors LLP for not complying with Sebi’s AIF (alternative investment funds) rules.
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In its consultation paper, Sebi has suggested that trustees of mutual funds should focus on market abuse by AMC, its employees and mis-selling by the AMC to increase the asset base.
Also, trustees should be responsible for fairness of fees and expenses charged by the AMC, compare its performance with peers and ensure that AMC’s sponsor is not getting any undue advantage.
In addition to the core areas, the trustees should be responsible for periodically reviewing the steps taken by AMCs for the folios which do not contain all KYC attributes with bank details.
Further, Sebi has suggested that trustees and their resource persons should independently evaluate the extent of compliance by AMC and not merely rely on AMC’s assurances.
To facilitate trustees’ supervision, AMCs should provide them with analytical information.
Presently, the trustees primarily rely on the AMCs for ensuring compliance with the applicable rules.
Under the rules, trustees hold the property of the mutual fund in trust for the benefit of the unitholders. The trustees appoint an AMC to float schemes for the mutual fund and manage the funds mobilised under various schemes, in accordance with the investment objectives.
“In view of the increasing scale and reach of the mutual fund industry, trustees’ role in respect of unitholders’ protection assumes even greater significance,” Sebi said on Friday.
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Over the past decade there has been a five-fold increase in the size of the mutual fund industry. The assets under management (AUM) has surged from Rs 7.93 lakh crore in November 2012 to Rs 39.89 lakh crore in December 2022.
To ensure that trustees devote time and attention to their core responsibilities, Sebi has suggested that for fulfilling other responsibilities, trustees may rely on professional firms such as audit firms, legal firms, merchant bankers for carrying out due diligence on their behalf.
The Sebi also listed some duties trustees can delegate to AMCs. This include ensuring that all systems are in place prior to the launch of any scheme by the AMC, and calculating any income in the mutual fund due to the fund and any income received in the mutual fund for unitholders.
The regulator has proposed to provide a one year time to existing trustees with board of trustee structure to convert into a trustee company, from governance point of view.
Presently, two structures for trustees are permitted — corporate and board of trustees structure. Moreover, there are a few mutual funds which have the board of trustees structure while the trustees of all other mutual funds have adopted the structure of a trustee company.
Considering the enhanced role of trustees over the period of time, Sebi has suggested to increase the minimum number of trustees to adequately perform their functions. Presently, the minimum number of trustees prescribed is four.
Also, it has been proposed that the chairperson of the trustee company should be an independent director.
Sebi has suggested that apart from the meeting of the audit committee of AMCs and trustees (which mostly comprises of independent directors), the board of AMCs and the board of trustees may be mandated to meet at least once a year to discuss the issues concerning the mutual funds.
The regulator proposed that the existing MF Regulations on AMC and its obligations may be amended to include additional clauses with respect to the obligations of the board of AMC.
The proposed amendment may include a clause which casts an obligation on the board of AMC to ensure that all the activities of the asset management company are in accordance with the provisions of these regulations.
The Securities and Exchange Board of India (Sebi) has sought comments from public till February 24 on these proposals.