SEBI Proposes Stricter Regulations for Alternative Investment Funds

SEBI Proposes Stricter Regulations for Alternative Investment Funds

The Securities and Exchange Board of India (SEBI) has turned its regulatory spotlight on Alternative investment funds (AIFs), expressing concerns about their compliance. In a mid-January consultation paper, SEBI outlined proposals aimed at enhancing trust and facilitating business within the AIF ecosystem while ensuring that the framework is not exploited to breach regulations.

SEBI recognises the need to tackle instances where AIFs are established to sidestep regulations. These practices include the evergreening of loans, bypassing Foreign Exchange Management Act (FEMA) rules related to foreign exchange, and non-compliance with regulations governing qualified institutional buyers.

SEBI intends to introduce a mandate that AIFs, AIF managers, and key management personnel must actively prevent any facilitation of regulatory circumvention within the financial sector.

The consultation paper encourages collaboration between the industry and the regulator to establish specific, verifiable standards. These standards will demonstrate adherence to regulations while allowing AIFs to continue legitimate investment activities.

SEBI’s vigilance is well-founded, considering its identification of 40 cases where AIF structures were misused to violate existing financial regulations, involving assets under management worth over ₹300 billion ($3.6 billion).