scorecardresearchMutual funds aggressively look for risk professionals to adhere to SEBI’s deadline

Mutual funds aggressively look for risk professionals to adhere to SEBI’s deadline

Updated: 30 Mar 2022, 11:11 AM IST
TL;DR.

Sebi asked asset management companies to appoint dedicated risk officers by April 1 in a circular issued in September last year

According to the Sebi circular, AMCs should have a CRO, who would be responsible for the overall risk management of the mutual fund operation.

According to the Sebi circular, AMCs should have a CRO, who would be responsible for the overall risk management of the mutual fund operation.

A regulatory diktat has triggered a rush for risk professionals among asset managers, bringing what used to be a low-key profile into the spotlight, reported Business Standard.

In a circular issued in September last year, the market regulator Sebi asked asset management companies (AMCs) to appoint dedicated risk officers who can manage investment, compliance, operational, and cyber risks, along with a chief risk officer (CRO) by April 1, 2022.

Incidentally, over a third of the 44 fund houses did not have a CRO until last year and the mandate has accelerated a search for talent as banks, insurance companies, NBFCs and consultancy firms are turning out to be favourite hunting ground, Business Standard wrote.

Even AMCs that had a head of risk have gone to the market to scout for senior professionals with better experience and pedigree. AMCs have added an estimated 100-150 risk officers in the past six months, according to people in the know, and the numbers are expected to swell in the coming months, wrote Business Standard.

“It is not easy to meet the regulatory requirements, especially if you want to set everything up overnight. Smaller AMCs, in particular, may find the diktat difficult to implement and have to bear a huge operating cost,” said a senior official of a large bank-sponsored fund house, which now has over 20 people in its risk team and is in the process of rejigging its existing risk framework.

“Finding a CRO has been a real nightmare; we have finally managed to hire somebody who is expected to join soon,” said the chief executive of a small fund house.

The hiring of CRO is likely to raise costs for the industry. On an average, the salary for risk officers could range from 30-60 lakh per annum and a chief risk officer earns up to 1 crore. The dearth of talent has prompted some AMCs to look at stop-gap arrangements that include the rejigging of internal teams.

“Risk management is a core and non-negotiable part of the fund management business. I can lose my job on non-performance but not on non-compliance,” said Swarup Mohanty, CEO, Mirae Asset Investment Managers (India). The asset manager had segregated its risk and compliance divisions last year. It now has five people in compliance and another four in the risk department, which is now headed by Manish Jha, who earlier reported to the compliance head.

According to the Sebi circular, AMCs should have a CRO, who would be responsible for the overall risk management of the mutual fund operation, including the key risks. This is in addition to one chief experience officer (CXO)-level officer responsible for each key risk type. The CXO shall be the ‘head of department’ or official of the AMC up to one level below the CEO, other than the CRO.

There shall be a clear demarcation between the roles and responsibilities of the respective CXOs and the CRO. The CRO or the risk management function of the CRO cannot be entrusted with day-to-day functioning, the responsibility for which shall lie with the respective CXOs.

A risk officer should ideally come from a mutual fund background. Given the level of seniority and salaries being paid, fund houses need someone who get cracking from day one rather than someone who will take months to get accustomed to the functioning of the industry.

Both AMC and trustees are required to have separate risk management committees (RMCs), which will undertake an annual review of the risk management framework at the AMC and scheme levels.

 

First Published: 30 Mar 2022, 11:11 AM IST