Securities and Exchange Board of India (SEBI) rolled out the first amendment this year to the SEBI (Alternative Investment Funds) Regulations, 2012 (AIF Regulations) dated January 05, 2024 refining the regulatory framework governing Alternative Investment Funds (AIFs).
The amendment is a culmination of the proposals approved during the Board Meeting of SEBI held on November 25, 2023. A detailed analysis of the Amendment and its implications for AIFs is set out hereunder.
Dematerialization of Investments (Regulation 15):
The amendment introduced an addition to Regulation 15 in sub-regulation (1), after clause (h), requiring AIFs to hold their investments in dematerialized form. However, certain exceptions are allowed which provide the list of situations where an AIF can hold the investment in a non-dematerialised form. This includes investments in instruments and liquidation schemes of AIFs that are not eligible for demat.
Custodian Appointment and Reporting (Regulation 20):
In Regulation 20, the norms with respect to the appointment of custodians has been modified. Sub-regulation (11) has been substituted, where the Sponsor or Manager of an Alternative Investment Fund is mandated to appoint a Custodian registered with the Board. The Custodian’s role includes the safekeeping of the fund’s securities, with specific provisions for Category III AIFs dealing with commodity derivatives.
Key Conditions for Custodian Association (Regulation 20.11A):
A new sub-regulation (11A) is introduced, allowing a Custodian associated with the Sponsor or Manager under certain conditions. These conditions include the Sponsor or Manager having a minimum net worth, director representation independence, non-subsidiary relationships, absence of common directors, and a commitment to act independently. These conditions are established to maintain the integrity and independence of custodial functions.
Read SEBI AIF Amended Regulations at: SEBI AIF
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