Synopsis:
AMFI has implemented new guidelines to prevent asset management companies (AMCs) from front-running and abusing the market. Beginning in November 2024, AMCs will create three-tiered warnings on suspected trading activity, analyze employee correspondence, entry logs, CCTV footage, and biometric access to dealing rooms. This will increase compliance expenses and impose new requirements.
The Association of Mutual Funds in India (AMFI) has laid down minimum standards to prevent front running and market abuse by asset management companies (AMCs).
The new standards will be implemented in a phased manner starting from November 2024. Key highlights include: –
Every week, AMCs will be required to issue 3-tier level notifications on suspicious trading behavior and develop standard operating processes for reviewing them.
AMCs will review recorded communication of key employees, entry logs, and CCTV footage to examine suspicious alerts. Biometric entry to dealing rooms will be required.
AMCs can review transactions of their employees and immediate relatives if linked to suspicious alerts, and can also initiate action against brokers linked to such alerts.
The new norms will raise compliance costs for AMCs and put additional obligations on them.
1. When will the new standards be implemented, and for which types of mutual fund schemes?
AMFI introduces new standards to prevent front running and market abuse, starting in November 2024 for equity schemes with over ₹10,000 crore, and later in May for passive, arbitrage, overseas schemes.
2. What kind of monitoring and review mechanisms are AMCs required to put in place under the new norms?
AMFI’s new standards aim to prevent market abuse and front running, impacting asset management companies (AMCs) with increased compliance costs and obligations. The industry’s expensive software and direct exchange access for data tracking are expected to be significant.
3. How will the new standards impact the compliance costs and obligations for AMCs?
The new standards introduced by AMFI to prevent front running and market abuse are expected to impact the compliance costs and obligations for asset management companies (AMCs). The new norms are likely to raise compliance costs and put additional obligations on AMCs. The industry is attempting to obtain data directly from exchanges for level two warnings because the software needed to follow some of the data is costly. Therefore, the impact on compliance costs and obligations for AMCs is expected to be significant.
