The market regulator on Wednesday asked the Asset Management Company (AMCS) to establish an audit committee that will be responsible for supervision of the financial reporting process, audit process, and compliance with laws and regulations, among others.

Circular will take effect with the effect of August 1, 2022. At present, the audit committee is at the level of mutual fund supervisor.

Sebi said the decision had been taken after taking into account the recommendations of the Mutual Fund Advisory Committee and the feedback received from the industry and had come out with a detailed outline for roles, responsibilities, membership and other features of the AMC Audit Committee.

The committee’s mandate is to review the financial reporting process, the internal control system and audit process for AMC mutual fund operations.

In addition, it will be necessary to ensure that repairs, if any, are suggested by internal and external auditors, among others, followed up. “The AMC Audit Committee will be responsible for leading the financial reporting process, the audit process, the company’s internal control system, compliance with laws and regulations and other related processes, with specific references to the operation of the business,” said in a round.

Regulators have established detailed strengths and responsibilities of the Committee in connection with financial reporting, audits (internal and legal) and internal controls, regulatory compliance and other functions. Internal auditors must submit their reports to the AMC Audit Committee and the AMC Council, Sebi said.

The Committee will continue their observations in the internal audit report, if any, to be trusted, he added. The chairman is mandated to carry out a minimum of four meetings in a financial year and there should be more than 120 days of gap between two meetings.

The meeting can also be called by the US chairman and when needed and SEBI also mentioned the quorum for the meeting. Members of the Audit Committee will be appointed by the AMC Board of Directors, according to Sebi. In the composition of the committee, Sebi said it would have three minimal directors as members and at least two-thirds of committee members would become the Director of the AMC Independent.

If two third of the total strength produces a fraction, the higher number after rounding must be considered. “The Chair of the Committee will be an independent director, with adequate experience in finance and financial services,” said Sebi.