Capital markets regulator Securities and Exchange Board of India (Sebi) has released a consultation paper to enhance trust in the alternative investment funds (AIF) ecosystem to facilitate ease of doing business measures.
The regulator doesn’t want regulation to prevent genuine investment. So, the regulator is asking for public comments for the proposal, which can be submitted till February 11, 2024.
Sebi is currently piloting deeper engagement with industry participants through the formation of several Industry Standards forums.
Need of regulations
The alternative investment fund (AIF) industry has grown over the past few years, with the investments rising to ₹3.5 lakh crore as on September 30, 2023. When compared with mutual funds and PMS, AIFs are meant to face softer regulations. And the scheme of things has been abused to circumvent regulations, thus eroding the trust in the institution.
The regulator has pointed out that there were more than 40 cases involving more than ₹30,000 crore where AIFs were structured to facilitate circumvention of certain financial sector regulations, reads the proposal.
Some of the popular techniques to float AIFs to avoid regulations include ever-greening of loans, avoiding FEMA norms and avoiding QIB regulations.
Regulator’s proposal
While the regulator feels there is a need to address these concerns and procure data to monitor the same, it is also equally important to ensure that the regulatory intervention does not take away the flexibility of AIFs to carry out legitimate investments.
ALSO READ: The big fuss about RBI’s AIF circular
As a result, the regulator proposes an approach that addresses the concerns proportionately while facilitating the ease of doing business at the same time.
“To address the specific regulatory concerns, it is proposed to introduce a general obligation in the existing AIF regulations that would require AIFs, managers and their key management personnel to ensure that their operations do not facilitate circumvention of regulations,” reads the consultation paper.
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Published: 22 Jan 2024, 12:59 PM IST