Specific due diligence of investors and investments of AIFs
Overview:
The SEBI circular issued on October 8, 2024, mandates specific due diligence requirements for Alternative Investment Funds (AIFs), their managers, and key management personnel to prevent the circumvention of various regulatory frameworks. This is in line with Regulation 20(20) of the AIF Regulations, 2012.
Key Provisions:
Due Diligence Requirements:
AIFs must exercise due diligence regarding investors and their investments to comply with:
ICDR Regulations: Focus on preventing ineligible investors from availing benefits designated for Qualified Institutional Buyers (QIB).
SARFAESI Act: Ensure that investors are eligible for benefits as Qualified Buyers (QIBs).
RBI Norms: Address issues related to ever-greening of stressed loans/assets by ensuring compliance with RBI regulations.
NDI Rules: Special scrutiny for investments from countries sharing land borders.
2. Specific Obligations:
For AIF schemes with 50% or more contribution from related investors, due diligence as per the implementation standards set by the Standard Setting Forum for AIFs (SFA) is required before availing any benefits.
Managers of AIFs must ensure that their schemes do not inadvertently enable investors to bypass regulations.
3. Reporting Requirements:
AIFs must report to their custodians regarding compliance with due diligence checks for both existing and proposed investments.
Custodians are tasked with compiling this information and reporting to SEBI.
4. Implementation Standards:
Custodians are AIFs must adopt the implementation standards formulated by the SFA, which will be published by relevant industry associations.
SW Point of View: This circular is effective immediately and aims to safeguard investor interests while ensuring compliance with SEBI regulations. This circular establishes a framework to enhance transparency and regulatory compliance within the AIF sector, thus promoting the integrity of the securities market..
