Executive Summary:
This circular, issued by SEBI on December 9, 2022, specifies guidelines for foreign investment in Alternative Investment Funds (AIFs). It outlines conditions that AIF managers must ensure at the time of onboarding foreign investors, focusing on regulatory compliance and anti-money laundering standards. The circular is effective immediately.
Key Points / Main Content:
* **Eligibility of Foreign Investors:**
* Foreign investors in AIFs must be residents of countries whose securities market regulator is a signatory to the IOSCO Multilateral Memorandum of Understanding (Appendix A Signatory) or has a bilateral MOU with SEBI that provides for information sharing.
* Government or government-related investors not meeting the above condition may be accepted if they are residents of a country approved by the Government of India.
* **Investor Due Diligence:**
* AIF managers must ensure that investors, or their underlying investors contributing 25% or more to the corpus or identified based on control, are not on the United Nations Security Council Sanctions List.
* Investors must also not be residents of countries identified by the Financial Action Task Force (FATF) as having strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies.
* **Non-Compliance:**
* If an existing investor subsequently fails to meet the specified conditions, the AIF manager must cease further capital drawdowns from that investor until compliance is restored.
Impact Analysis:
* **Alternative Investment Funds (AIFs):**
* *Impact:* AIFs must adhere to stricter due diligence requirements when onboarding foreign investors and continuously monitor existing investors for compliance.
* *Action Required:* AIF managers must review and update their onboarding processes to ensure compliance with the new guidelines and implement monitoring mechanisms for existing investors.
* **Foreign Investors:**
* *Impact:* Foreign investors may face additional scrutiny regarding their residency and compliance with international sanctions and anti-money laundering standards.
* *Action Required:* Foreign investors should ensure they meet the specified criteria and be prepared to provide necessary documentation to AIF managers during onboarding and ongoing monitoring.
* **Securities and Exchange Board of India (SEBI):**
* *Impact:* SEBI is responsible for overseeing the implementation of these guidelines and ensuring compliance by AIFs.
* *Action Required:* SEBI will monitor AIFs' adherence to these guidelines and may take action against non-compliant entities.
Key Entities Referenced
Alternative Investment Funds: A type of investment fund that typically caters to sophisticated investors and employs diverse investment strategies.
SEBI Alternative Investment Funds Regulations, 2012: Regulations established by SEBI governing the operations and activities of Alternative Investment Funds in India.
International Organization of Securities Commissions: A global organization of securities regulators that aims to promote high standards of regulation in order to maintain just, efficient and sound securities markets.
Securities and Exchange Board of India: The regulatory authority for the securities market in India.
Securities and Exchange Board of India Act, 1992: The Act of the Indian Parliament that established the Securities and Exchange Board of India (SEBI).
United Nations Security Council: A principal organ of the United Nations responsible for the maintenance of international peace and security.
Financial Action Task Force: An inter-governmental body that sets standards and promotes effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.
Government of India: The Union Government established by the Constitution of India
CIRCULAR
SEBI/HO/AFD-1/PoD/P/CIR/2022/171 December 09, 2022
To,
All Alternative Investment Funds
Sir/Madam,
Sub: Foreign investment in Alternative Investment Funds (AIFs)
1. In terms of Regulation 10(a) of SEBI (Alternative Investment Funds) Regulations,
2012 (‘AIF Regulations’), AIFs may raise funds from any investor whether Indian,
foreign or non-resident Indians, by way of issue of units.
2. In this regard, the following is specified:
2.1. At the time of on-boarding investors, the manager of an AIF shall ensure the
following:
(a) Foreign investor of the AIF is a resident of the country whose securities
market regulator is a signatory to the International Organization of
Securities Commission’s Multilateral Memorandum of Understanding
(Appendix A Signatory) or a signatory to the bilateral Memorandum of
Understanding with SEBI.
For the purpose of the aforesaid clause, “Bilateral Memorandum of
Understanding with SEBI” shall mean a bilateral Memorandum of
Understanding between SEBI and any authority outside India that
provides for information sharing arrangement as specified under clause
(ib) of sub-section (2) of Section 11 of the Securities and Exchange
Board of India Act, 1992.
AIFs may accept commitment from an investor being Government or
Government related investor, who does not meet the aforesaid condition,
if the investor is a resident in the country as may be approved by the
Government of India.
(b) The investor, or its underlying investors contributing twenty-five percent
or more in the corpus of the investor or identified on the basis of control,
is not the person(s) mentioned in the Sanctions List notified from time to
time by the United Nations Security Council and is not a resident in the
country identified in the public statement of Financial Action Task Force
as –
Page 1 of 2(i) a jurisdiction having a strategic Anti-Money Laundering or
Combating the Financing of Terrorism deficiencies to which
counter measures apply; or
(ii) a jurisdiction that has not made sufficient progress in addressing
the deficiencies or has not committed to an action plan developed
with the Financial Action Task Force to address the deficiencies.
For the purpose of the aforesaid clause, “control” includes the right to
appoint majority of the directors or to control the management or policy
decisions exercisable by a person or persons acting individually or in
concert, directly or indirectly, including by virtue of shareholding or
management rights or shareholders agreements or voting agreements or
in any other manner.
2.2. In case an investor who has been on-boarded to scheme of an AIF,
subsequently does not meet the conditions specified at clause 2.1 above, the
manager of the AIF shall not drawdown any further capital contribution from
such investor for making investment, until the investor again meets the said
conditions. The same shall also apply to investors already on-boarded to
existing schemes of AIFs, who do not meet conditions specified at clause 2.1
above.
3. This circular shall come into force with immediate effect.
4. This circular is issued with the approval of the competent authority.
5. This circular is issued in exercise of powers conferred under Section 11(1) of the
Securities and Exchange Board of India Act, 1992 to protect the interests of
investors in securities and to promote the development of, and to regulate the
securities market.
6. The circular is available on SEBI website at www.sebi.gov.in under the categories
"Legal framework - Circulars" and "Info for - Alternative Investment Funds”.
Yours faithfully,
Sanjay Singh Bhati
Deputy General Manager
Tel no.: +91-22-26449222
ssbhati@sebi.gov.in
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