Sebi beefs up risk management norm for MFS

The Securities and Exchange Board of India (Sebi) on Monday announced a new risk management framework (RMF) for the mutual fund industry. The framework prescribes procedures, risk management functions, roles and responsibilities to be followed by the management.

“There should be at least one CXO level officer identified to be responsible for the risk management of specific functions of the MFS. AMC should have a chief risk officer (CRO), who would be responsible for the overall risk management of the mutual fund operation including the key risks,” said Sebi in the circular.

The risk shall be divided into two broad categories, scheme-specific risks and Amcspecific risks. The scheme specific risks will be further divided into investment risk, credit risk, liquidity risk and governance risk. While for AMC regulators have suggested eight different categories like operational risk, outsourcing risk, talent risk among others.

The credit risk relevant to MFS is the issuer credit risk attributable to individual securities and the negative outlook on specific sectors or industries and its consequent impact on the credit exposures. To manage credit risk, the AMC must have a robust framework comprising an approved and documented Credit Risk Management policy.