The Securities and Exchange Board of India (SEBI) on January 19, 2024, issued a Consultation Paper on a proposal to enhance trust in the Alternative Investment Funds (‘AIF’) ecosystem to facilitate Ease of Doing Business measures.
This consultation paper proposes to introduce a requirement that AIFs, Managers of AIFs and the Key Management Personnel of AIFs and their managers ensure that AIFs do not facilitate circumvention of extant financial sector regulations. The specific verifiable standards to demonstrate adherence to this obligation are proposed to be formulated by the pilot Industry Standards Forum for AIFs, in consultation with SEBI.
The following has been proposed:
• To insert a provision in Chapter IV (viz. General Obligations and Responsibilities and Transparency) of the SEBI (AIF) Regulations, 2012.
• SEBI shall prescribe a framework under the above-mentioned regulation, to specify the objectives and the regulatory principles envisaged to address regulatory circumventions. Such principles shall guide the framing of the specific and verifiable standards for due diligence that the stakeholders of the AIF will need to conduct for ascertaining as to whether the participation of an investor in a particular investment of the AIF facilitates circumvention of extant regulations.
• The specific standards of verifiable due diligence (guided by the framework and principles enumerated by SEBI) accompanied by suitable standards of reporting by AIFs, shall be formulated by the pilot SFA, in consultation with SEBI.
Considering the implications of the aforementioned matter on the market participants, public comments are invited for the proposal given above. The comments/suggestions may be provided by February 11, 2024.
