Sebi rules. Skin in the game: SEBI defers new norms for MFs to Oct

Capital market regulator SEBI has postponed implementation of the skin-in-the-game norms for the employees of mutual fund to October instead of the earlier notified deadline of July 1.

The new norm intends to align the employees’ interest with that of unitholders by forcing the former to invest part of their salary in the schemes they manage. SEBI has agreed to push back the deadline after the industry sought more time to implement the rule as it involved rejigging the salaries and pay structure of fund managers.

Covid impact

Moin Ladha, Partner, Khaitan & Co, said the intention of the circular is to ensure KMPs (key managerial personnel) have their skin in the game, which would also ensure protection of interest of unitholders. This would impact a substantial portion of the remuneration of the KMPs and the deferment of implementation to October could have been driven by various other reasons too including the current uncertainties triggered by the pandemic, he said.

In April, SEBI mandated that a minimum of 20 per cent of the salary of the key employees should be paid in the form of units of mutual fund schemes in which they have a role or oversight, and imposed a lock-in of three years on such allotments.

If an employee or fund manager is involved with only one scheme, 50 per cent of his payout will be through units in that scheme and 50 per cent in others that he chooses, of similar or higher risk profile.

Radhika Gupta, Chief Executive Officer, Edelweiss Asset Management, in a tweet had said the circular applies to not just senior employees but also junior research staff, dealers and support function heads who do not even earn the kind of money like the CEOs and CIOs.

A guy earning ₹15-20 lakh (per annum) has to put away ₹3-4 lakh and it will be a forced investment, she had said.

Suraj Malik, Partner, BDO India LLP, said the extended deadline gives AMCs more time to align the compensation structures.

The new regulations permit a clawback from the units allotted to employees in case of violation or gross neglect situations. Once redeemed post lock in, there are no clawback provisions, he said.

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