Sebi looks to implement project on automation of inspection, surveillance of MFs

Under the project, mutual fund-related data would be ingested in Sebi database and algorithms will generate instances of breaches

Markets regulator Sebi is in the process of implementing a project on automation of inspections and surveillance of mutual funds, a move that will help in reducing the lag in recognition of violations, its chief Ajay Tyagi said.

The Securities and Exchange Board of India (Sebi) is eyeing a major technological leap in its surveillance and investigation functions.

"Sebi is also in the process of implementing a project on automation of inspections and surveillance of mutual fund," Tyagi said in the regulator's annual report for 2019-20.

Under the project, mutual fund-related data would be ingested in Sebi database and use of algorithms in order to generate instances of breaches of regulatory guidelines by mutual funds in respect of several important guidelines where quantitative analysis is possible.

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Successful implementation of this project will enable Sebi to leverage technology to move towards automation of inspections of mutual funds, 100 per cent inspection of data in place of samples and to reduce the lag in recognition of violation, according to the annual report.

In addition, Sebi has taken several measures to strengthen the regulatory framework for debt oriented schemes of mutual fund and is ready to initiate more reforms if required, Tyagi said.

The steps taken by Sebi for debt mutual funds include mandating minimum investments in liquid assets and introduction of exit load for liquid schemes, placing restrictions on investment in unlisted and unrated debt securities and review of the sectoral limits on investments.

In addition, steps have been taken to improve the robustness of the valuation of debt securities by mutual funds.

These reforms are aimed at placing mutual funds in a better position to deal with credit events and redemption pressures, strengthening prudential norms for investments and bringing more transparency in their investments, Sebi chief said.

"More reforms, as may be required, would be brought in going forward," Tyagi said.

Also, Sebi has already developed an in-house automated system by which it is able to do system based reconciliation of client level securities holdings by brokers thus detecting client securities misuse by brokers if any.

Further, in order to detect possible market manipulation and strengthen market supervision through technology solutions, Sebi has initiated a "data analytics and data models project.”

Apart from taking steps towards increasing technological sophistication of the markets, Sebi said it has continuously upgraded technology in its own regulatory functions.

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The regulator has started work on a data lake project which would have the capability to store and retrieve quickly, a large amount of structured, semi-structured and unstructured data.

The data lake project will support advanced analytical tools, such as artificial intelligence and machine learning (AI/ML), deep learning, big data analytics, pattern recognition, processing of structured and unstructured data, text mining and natural language processing thereby significantly augmenting surveillance capabilities.

At the same time, to safeguard against the associated risks including cyber frauds in newer technologies, Sebi implemented its Security and Network Operations Center project adhering to international security standards and best practices.