Sebi mulls direct reporting of AIFs’ PPM changes to rationalise compliance cost.
Market regulator Securities Exchange Board of India (SEBI) is considering some major changes in the private placement memorandum (PPM) of alternative investment funds (AIFs).
In order to facilitate the ease of doing business, Sebi has proposed that the PPM of the AIF can be directly submitted to the market regulator rather than processing it through a merchant banker.
The proposed move would also rationalise the cost of compliance for AIFs.
PPM is a document used to present details of an investment opportunity offered by a company or fund to potential investors.
In its draft circular, Sebi said that certain changes carried out in private placement memorandum are not required to be filed through merchant bankers and can be filed directly to the regulator. These included changes in the size of the fund, information related to affiliates, commitment period, key investment team of the manager and key management personnel of AIF, and reduction in expense or fee or cost charged to fund/investors.
The changes in contact details of AIF, sponsor, manager, trustee or custodian, risk factors and track records of investment manager, among others, are not required to be filed through a merchant banker, said the draft circular.
Currently, any change in the terms of PPM is required to be submitted to Sebi through a merchant banker, along with a due diligence certificate from the merchant banker in a specified format.
The market regulator has sought public comments on the proposal by April 26.
It has also proposed that large-value funds (LVFs) for accredited investors should be exempted from the requirement of intimating any changes in terms of PPM through a merchant banker.
Moreover, it suggested that LVFs should directly file any changes in the terms of PPM with Sebi, along with a duly signed and stamped undertaking by the CEO of the manager of the AIF and compliance officer of the manager of the AIF in a specified format.
Potential Benefits of the Proposed Changes
The proposed changes by SEBI to allow direct reporting of AIFs’ PPM changes have several potential benefits:
- Reduced Compliance Costs: By eliminating the need for a merchant banker as an intermediary, AIFs would be able to save on compliance costs associated with filing changes in the PPM. This would result in cost savings for AIFs, enabling them to allocate resources more efficiently.
- Streamlined process: Direct submission of PPM changes to SEBI would simplify the compliance process for AIFs. AIFs would no longer have to follow the cumbersome process of involving merchant bankers for reporting changes in the PPM, saving time and effort.
- Enhanced Efficiency: The proposed changes would lead to more efficient compliance procedures for AIFs. With direct reporting to SEBI, AIFs would have a quicker turnaround time in making changes to the PPM, allowing them to be more agile and responsive to market conditions.
- Ease of Doing Business: By simplifying the compliance requirements, SEBI aims to improve the ease of doing business in the country. This would attract more investors and promote investment in the AIF sector.
- Focused Regulatory Oversight: With direct reporting of PPM changes, SEBI would have access to real-time information about the changes made by AIFs. This would facilitate effective regulatory oversight, enabling SEBI to monitor the activities and operations of AIFs more efficiently.
Conclusion
The proposed changes by SEBI to allow direct reporting of AIFs’ PPM changes have the potential to significantly benefit AIFs by reducing compliance costs, streamlining the process, enhancing efficiency, and promoting the ease of doing business. These changes would provide a more investor-friendly environment while enabling effective regulatory oversight. Overall, these measures are expected to support the growth and development of the AIF industry in India.
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