The Hindu Business Line : For effective governance — ICSI proposes independent compliance checking for MFs

THE Institute of Company Secretaries of India (ICSI) has proposed independent professional compliance checking for careful operation of mutual funds which will benefit all the parties concerned - board of trustees, asset management companies, fund investors as well as the regulators.

Besides, a certificate from independent compliance officer would also help in attracting small and retail investors, an ICSI official said.

In a presentation to the Association of Mutual Funds of India (AMFI), the Institute has suggested that the checking of compliances by the compliance officer should be `reinforced' and not replaced by an independent professional assurance of compliance.

Currently, the mutual fund governance model prescribes for professional scrutiny of management functioning and reporting by auditors and compliance officers. It, however, does not stipulate appointing a practicing company secretary (PCS) as an independent compliance officer. The Institute has also proposed that scrutiny can be done under a standard format. The compliance officer would report to the Board of Trustees periodically with exceptional reporting to SEBI. "In fact, it can be made part of the half-yearly report of trustees to SEBI," ICSI official said.

On the question what makes practicing company secretaries suitable for the job of a compliance officer, sources said: "A PCS is an independent professional bound by the code of conduct rendering audit, advisory and representation services in relation to management, law and corporate governance process."

The Institute said that PCS has adequate exposure in ensuring procedural requirements for issue of securities to the investor and compliance of SEBI requirements to work as independent compliance officer. Also independent compliance checking is the trustee's tool to oversee the functioning of mutual fund, sources said. It would avoid unintended deviations from rules, ensures effective discharge of trustee duties, and may protect trustees from action for breach of duty. Further, such checking would also increase confidence in reporting to investors and regulators.

The Institute has suggested that SEBI in consultation with it can constitute a panel of PCS with certain eligibility criteria. Further, ICSI in consultation with AMFI may develop the format of a standard report and reporting periodicity.

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