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**Report: Analysis of the Securities and Exchange Board of India Portfolio Managers Amendment Regulations, 2022**
**1. Executive Summary:**
This report analyzes the Securities and Exchange Board of India (SEBI) Portfolio Managers Amendment Regulations, 2022. This amendment to the Securities and Exchange Board of India Portfolio Managers Regulations, 2020 focuses on defining "related parties" and regulating investments made by portfolio managers in the securities of these related parties. Key changes include requiring prior consent from clients before investing in related party securities, specifying disclosure requirements, and setting prudential limits on investments, including a prohibition on investing client funds in unrated securities of related parties or their associates. The aim is to enhance transparency and protect client interests by mitigating potential conflicts of interest.
**2. Introduction:**
This report provides an informative analysis of the Securities and Exchange Board of India Portfolio Managers Amendment Regulations, 2022, based solely on the official gazette notification text provided. The purpose is to outline the key changes introduced by the amendment, their likely rationale, and the potential impact on portfolio managers and their clients.
**3. Policy Overview:**
* This is an *amendment* to the Securities and Exchange Board of India Portfolio Managers Regulations, 2020.
* **Core Objective(s):** The core objectives, as inferred from the text, are to:
* Increase transparency regarding investments in related parties.
* Protect client interests by addressing potential conflicts of interest.
* Introduce prudential limits on investments by portfolio managers.
**4. Background and Rationale:**
This amendment addresses potential conflicts of interest that may arise when portfolio managers invest client funds in the securities of related parties or associates. The text suggests that SEBI is concerned about the possibility of portfolio managers prioritizing their own interests or the interests of related entities over those of their clients. The specific definition of "related party" and the restrictions on investments (e.g., prior consent, prohibition on unrated securities) are designed to mitigate these risks and ensure that investment decisions are made in the best interests of the clients.
**5. Key Provisions / Changes:**
The amendment introduces the following key changes:
* **I. Definition of "Related Party":** A comprehensive definition of "related party" is inserted into regulation 2, encompassing directors, partners, key managerial personnel, firms/companies associated with them, and entities whose actions are influenced by the portfolio manager. It also includes entities that are part of the promoter group, or hold significant equity shares (20% or more, decreasing to 10% or more from April 1, 2023).
* **II. Regulation 22 Amendment (Investments in Related Parties):**
* *Specific Part Changed:* Regulation 22, concerning the duties of portfolio managers.
* *New Rule/Provision:* A new subregulation 1A requires portfolio managers to obtain prior consent from clients before investing in the securities of related parties or associates. The consent requirement may not apply to portfolio managers specified by the Board.
* *Effect of Change:* This change introduces a mandatory consent requirement, increasing client control and transparency in investment decisions involving related parties.
* *New Rule/Provision:* Subregulation 4 is amended to include requirements to disclose details of investments in securities of related parties or associates, and the diversification policy of the portfolio manager
* *Effect of Change:* This change requires more transparency and disclosure regarding investments and diversification.
* **III. Regulation 24 Amendment (Prudential Limits):**
* *Specific Part Changed:* Regulation 24, presumably concerning investment restrictions.
* *New Rule/Provision:* New subregulations 3A, 3B, 3C, 3D, and 3E are inserted, specifying that portfolio managers must comply with prudential limits specified by the Board, that limits apply at the client level, prohibiting investment in unrated securities of related parties or associates, require an alert system to monitor limits, and require that investment decisions are based on credit ratings of securities
* *Effect of Change:* This change imposes stricter controls on investments, aiming to limit risk and protect client capital.
* **IV. Schedule V Amendment (Disclosure):**
* *Specific Part Changed:* Schedule V, presumably concerning reporting requirements.
* *New Rule/Provision:* Clause 15 requires disclosure of details of investments in the securities of related parties of the portfolio manager. Clause 16 requires disclosure of details of the diversification policy of the portfolio manager for the portfolio of the clients.
* *Effect of Change:* This change enhances transparency by requiring specific reporting on related party investments and diversification policy.
**6. Target Audience and Stakeholders:**
The primary target audience and stakeholders are:
* Portfolio Managers registered with SEBI.
* Clients of portfolio managers.
* Securities and Exchange Board of India (SEBI).
**7. Implementation Aspects (Inferred):**
* **Responsible Agency/Bodies:** SEBI is the responsible body for enforcing these regulations.
* **Timelines:** The amendment comes into force on the thirtieth day from the date of its publication in the Official Gazette (August 22, 2022). Also, the definition of 'related party' in section I(b)(ii) changes on April 1, 2023.
* The Board may specify from time to time the manner in which prior consent of the client needs to be obtained.
* The Board may specify portfolio managers to which provisions do not apply.
* The Board may specify disclosure requirements other than those mentioned in the amendment.
* **Procedures:** Portfolio managers will need to establish procedures for obtaining client consent, monitoring prudential limits, disclosing related party investments, and ensuring compliance with credit rating requirements. They must also implement an alert-based system to monitor compliance.
**8. Expected Outcomes / Impact of Changes:**
The likely intended outcomes of these changes are:
* Increased transparency in investment decisions, particularly regarding related party transactions.
* Reduced potential for conflicts of interest and improved protection of client interests.
* More prudent investment practices by portfolio managers, with greater emphasis on risk management and diversification.
* Enhanced investor confidence in the portfolio management industry.
**9. Conclusion:**
The Securities and Exchange Board of India Portfolio Managers Amendment Regulations, 2022, represents a significant step towards enhancing the regulatory framework for portfolio managers in India. By defining "related parties," requiring prior client consent for related party investments, setting prudential limits, and mandating disclosure, the amendment aims to promote transparency, protect client interests, and foster a more responsible and trustworthy portfolio management industry. The changes introduced are likely to have a significant impact on the operations of portfolio managers and the way they interact with their clients.
Key Entities Referenced
Securities and Exchange Board of India: Regulatory body in India
Securities and Exchange Board of India Portfolio Managers Amendment Regulations, 2022: Title of the amendment regulations being enacted.
Securities and Exchange Board of India Act, 1992: The Act that confers powers to Securities and Exchange Board of India
Securities and Exchange Board of India Portfolio Managers Regulations, 2020: The regulations being amended by the Securities and Exchange Board of India Portfolio Managers Amendment Regulations, 2022.
Mumbai, Maharashtra: City in India. Place of notification for the regulations
Official Gazette: Official publication where the regulations will be published.
Companies Act, 2013: Act of Parliament of India on Indian company law which governs incorporation, regulation and winding up of companies in India
Madhabi Puri Buch: Chairman of Securities and Exchange Board of India
Securities and Exchange Board of India Regulatory Sandbox Amendment Regulations, 2020: Previous amendment to the Securities and Exchange Board of India Portfolio Managers Regulations, 2020
Securities and Exchange Board of India Portfolio Managers Amendment Regulations, 2021: Previous amendment to the Securities and Exchange Board of India Portfolio Managers Regulations, 2020
Securities and Exchange Board of India Portfolio Managers Second Amendment Regulations, 2021: Previous amendment to the Securities and Exchange Board of India Portfolio Managers Regulations, 2020
Securities and Exchange Board of India Regulatory Sandbox Amendment Regulations, 2021: Previous amendment to the Securities and Exchange Board of India Portfolio Managers Regulations, 2020
Securities and Exchange Board of India Portfolio Managers Third Amendment Regulations, 2021: Previous amendment to the Securities and Exchange Board of India Portfolio Managers Regulations, 2020
Securities and Exchange Board of India Portfolio Managers Fourth Amendment Regulations, 2021: Previous amendment to the Securities and Exchange Board of India Portfolio Managers Regulations, 2020
New Delhi: City in India. Place of publication
रजिस्ट्री स.ं डी.एल.- 33004/99 REGD. No. D. L.-33004/99
सी.जी.-एम.एच.-अ.-22082022-238238
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CG-MH-E-22082022-238238
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असाधारण
EXTRAORDINARY
भाग III—खण् ड 4
PART III—Section 4
प्राजधकार स ेप्रकाजित
PUBLISHED BY AUTHORITY
स.ं 406] नई ददल्ली, सोमिार, अगस्ट्त 22, 2022/श्रािण 31, 1944
No. 406] NEW DELHI, MONDAY, AUGUST 22, 2022/SHRAVANA 31, 1944
भारतीय प्रजतभजू त और जिजनमय बोडड
अजधसचू ना
मुम्बई, 22 अगस्ट्त, 2022
भारतीय प्रजतभजू त और जिजनमय बोडड
( ) (सिं ोधन) जिजनयम, 2022
स.ं /एल.ए.डी.-एन.आर.ओ./िी.एन./2022/94.—भारतीय प्रजतभूजत और जिजनमय बोड,ड भारतीय प्रजतभूजत
और जिजनमय बोडड अजधजनयम, 1992 (1992 का 15) की धारा 11 की उप-धारा (1), धारा 11 की उप-धारा (2) के खंड
(ख) 12 उ - (1) के साथ पठित धारा 30 उ - (1) द्वारा प्र गई िजियों का प्रयोग
करत े हुए, एतद्द्वारा भारतीय प्रजतभूजत और जिजनमय बोडड ( ) जिजनयम, 2020 का और संिोधन करने के
जलए जनम्नजलजखत जिजनयम बनाता ह,ै अथाडत:् -
1. इन जिजनयमों को भारतीय प्रजतभूजत और जिजनमय बोड ड ( ) (संिोधन) जिजनयम, 2022 कहा
िा सकेगा ।
2. ये रािपत्र म ेंइनके प्रकािन की तारीख से तीसिें ददन लाग ू होंग े ।
3. भारतीय प्रजतभूजत और जिजनमय बोडड ( ) जिजनयम, 2020 म,ें-
I. जिजनयम 2 उ - (1) ख ( ) , ख ख ग , , -
“( ) , “ ” ( ) –
(i) ई , ग ( ) उ ;
5603 GI/2022 (1)2 THE GAZETTE OF INDIA : EXTRAORDINARY [PART III—SEC.4]
(ii) ई ( ) उ ;
(iii) ई , , ग , ( ) उ ग
;
(iv) ई , , ग उ
( ) ;
(v) ई , , ग उ
( - ) उ औ उ
;
(vi) ई ग ( ) ,
( ग ) , ग , उ
;
(vii) ई , , ग
:
उ -ख (vi) औ (vii) ई ई
गई , ग ग ग ;
(viii) ई ग ( ) –
(क) जनयंत्री (होल्ल्डग / धाठरता), ग ( )
ग ( / ) ;
(ख) जनयंत्री कंपनी ग ग
;
(ग) ( ग ) उ
च ;
.- ख “
( ग ) उ च ” - ग
( )
ग ग ( / )
ग ।
(ix) ग ख ई ( );
(x) ई :
,
(क) ऐस ेदकसी व्यजि या ऐसी दकसी एंठििी को संबद्ध पक्षकार (ठरलेिेड पािी) माना
िाएगा, िो सूचीबद्ध (जलजस्ट्िड) एंठििी के संप्रितडक (प्रोमोिर) या संप्रितडक समूह
(प्रोमोिर ग्रुप) का जहस्ट्सा हो; या
(ख) ऐसे दकसी व्यजि या ऐसी दकसी एंठििी को संबद्ध पक्षकार माना िाएगा, जिसके
पास, िीक पहले के जित्तीय िर्ड के दौरान, दकसी भी समय, या तो प्रत्यक्ष रूप स े
या लाभाथी जहत (बेजनदिजियल इंिरेस्ट्ि) के आधार पर (िैसा दक कंपनी
अजधजनयम, 2013 की धारा 89 में उल्लेख दकया गया ह)ै, सूचीबद्ध (जलजस्ट्िड)
एंठििी म:ें
(i) बीस प्रजतित या उससे ज्यादा के इदििी िेयर हों; या[भाग III—खण् ड 4] भारत का रािपत्र : असाधारण 3
(ii) दस प्रजतित या उससे ज्यादा के इदििी िेयर हों (यह प्रािधान 1 अप्रैल,
2023 स ेलागू होगा);”
II. 22 ,
i. उप-जिजनयम (1) , ख उ - ग , , -
“(1 ) ( ) ग ( /
) प्रजतभूजतयों (जसक्यूठरिीज़) (उ
- ) ग :
उ ग ,
।”
ii. उ - (4) , ख (घ) , ख ख ग , , -
“(घ ) उ ( ) ग ( /
) प्रजतभूजतयों (जसक्यूठरिीज़) ( ) ग ;
(घख) ग- ग ग (
) :
ऊ ख (घ ) (घख) ई उ ग
ग , :
औ ऊ ख (घ ) (घख) ई
( ) ग ;”
III. 24 उ - (3) , ख उ - ग, , -
“(3 ) ग ,
।
(3ख) उ - (3 ) ग ,
ग ग ।
(3ग) ( ) ग ( /
) उ ( ) ( )
ग , ग ई ।
– उ - (3ग) , “ ग ( / )” ग -
(i) ग ( )
ग ( ) , ग- ग , , उ
( - ) ग
( ) ;
(ii) ग ( ) , ग- ग ,
, , ( -
) ग ( ) ।
(3घ) ख
ग ।
(3ङ) ग उ ( )
( ) ग ( ) :4 THE GAZETTE OF INDIA : EXTRAORDINARY [PART III—SEC.4]
उ - (3 ), (3ख), (3ग) (3ङ) ई उ
ग ग , भारतीय प्रजतभूजत और जिजनमय बोडड (पोिडिोजलयो प्रबंधक) (संिोधन) जिजनयम,
2022 ग ग :
औ उ - (3 ), (3ख), (3ग), (3घ) (3ङ) ई उ
ग ग , ।”
IV. च -V , ख (14) , ख ख ग , , -
“15) ( ) प्रजतभजूतयों (जसक्यूठरिीज़) ग
उ ( ) ग ( / )
प्रजतभूजतयों (जसक्यूठरिीज़) ( ) ग ।
16) ग- ग ग ( )
ग- ग ग
( ) ।”
च, अध्यक्ष
[जिज्ञापन III/4/असा./224/2022-23]
पाद ठिप्पण:
1. भारतीय प्रजतभूजत और जिजनमय बोडड ( ) जिजनयम, 2020, स.ं /एल.ए.डी.-
एन.आर.ओ./िी.एन./2020/03 द्वारा, 16 , 2020 को भारत के रािपत्र म ेंप्रकाजित हुए थ े।
2. भारतीय प्रजतभूजत और जिजनमय बोडड ( ) जिजनयम, 2020 तत्पश्चात,् -
क. 17 अप्रलै , 2020 को भारतीय प्रजतभूजत और जिजनमय बोडड (रेग्यूलेिरी सैंडबॉक्स) (संिोधन) जिजनयम 2020, स.ं
सेबी/एल.ए.डी.-एनआरओ/िी एन/2020/10, द्वारा
ख. 16 च, 2021 को भारतीय प्रजतभूजत और जिजनमय बोडड ( ) (संिोधन) जिजनयम 2021, स.ं
सेबी/एल.ए.डी.-एन.आर.ओ./िी.एन./2021/10, द्वारा
ग. 26 , 2021 को भारतीय प्रजतभूजत और जिजनमय बोडड ( ) ( संिोधन) जिजनयम
2021, स.ं सेबी/एल.ए.डी.-एन.आर.ओ./िी.एन./2021/16, द्वारा
घ. 3 अगस्ट्त, 2021 को भारतीय प्रजतभूजत और जिजनमय बोडड (रेग्यलू ेिरी सैंडबॉक्स) (संिोधन) जिजनयम, 2021,
च सं. सेबी/एलएडी-एनआरओ/िीएन/2021/30, द्वारा
ङ. 3 अगस्ट्त, 2021 को भारतीय प्रजतभूजत और जिजनमय बोडड ( ) (ती संिोधन) जिजनयम
2021, स.ं सेबी/एलएडी-एनआरओ/िीएन/2021/31, द्वारा
च. 9 , 2021 को भारतीय प्रजतभूजत और जिजनमय बोड ड ( ) (च संिोधन) जिजनयम
2021, स.ं सेबी/एलएडी-एनआरओ/िीएन/2021/58, द्वारा
संिोजधत हुए थ े।[भाग III—खण् ड 4] भारत का रािपत्र : असाधारण 5
SECURITIES AND EXCHANGE BOARD OF INDIA
NOTIFICATION
Mumbai, the 22nd August, 2022
SECURITIES AND EXCHANGE BOARD OF INDIA (PORTFOLIO MANAGERS)
(AMENDMENT) REGULATIONS, 2022
No. SEBI/LAD-NRO/GN/2022/94.—In exercise of the powers conferred by sub-section (1) of
Section 30 read with sub-section (1) of section 11, clause (b) of sub-section (2) of Section 11 and sub-
section (1) of Section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the
Securities and Exchange Board of India hereby makes the following regulations to further amend the
Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020, namely:—
1. These Regulations may be called the Securities and Exchange Board of India (Portfolio Managers)
(Amendment) Regulations, 2022.
2. They shall come into force on the thirtieth day from the date of their publication in the Official
Gazette.
3. In the Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020, —
I. after clause (p) of sub-regulation (1) of regulation 2, the following clause shall be inserted,
namely,-
―(pa) ―related party‖ in relation to a portfolio manager, means—
(i) a director, partner or his relative;
(ii) a key managerial personnel or his relative;
(iii) a firm, in which a director, partner, manager or his relative is a partner;
(iv) a private company in which a director, partner or manager or his relative is a
member or director;
(v) a public company in which a director, partner or manager is a director or
holds along with his relatives, more than two per cent. of its paid-up share
capital;
(vi) any body corporate whose board of directors, managing director or manager
is accustomed to act in accordance with the advice, directions or instructions
of a director, partner or manager;
(vii) any person on whose advice, directions or instructions a director, partner or
manager is accustomed to act:
Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice,
directions or instructions given in a professional capacity;
(viii) any body corporate which is—
(A) a holding, subsidiary or an associate company of the portfolio manager;
or
(B) a subsidiary of a holding company to which the portfolio manager is also
a subsidiary;
(C) an investing company or the venturer of the portfolio manager;
Explanation.—For the purpose of this clause, ―investing company or the
venturer of a portfolio manager‖ means a body corporate whose investment
in the portfolio manager would result in the portfolio manager becoming an
associate of the body corporate.
(ix) a related party as defined under the applicable accounting standards;
(x) such other person as may be specified by the Board:6 THE GAZETTE OF INDIA : EXTRAORDINARY [PART III—SEC.4]
Provided that,
(a) any person or entity forming a part of the promoter or promoter group of
the listed entity; or
(b) any person or any entity, holding equity shares:
(i) of twenty per cent or more; or
(ii) of ten per cent or more, with effect from April 1, 2023;
in the listed entity either directly or on a beneficial interest basis as
provided under section 89 of the Companies Act, 2013, at any time,
during the immediate preceding financial year;
shall be deemed to be a related party;‖
II. in regulation 22,
i. after sub-regulation (1), the following sub-regulation shall be inserted, namely,-
―(1A) The portfolio manager may make investments in the securities of its related
parties or its associates only after obtaining the prior consent of the client in such
manner as may be specified by the Board from time to time:
Provided that the requirement for obtaining consent shall not apply to such portfolio
managers as may be specified by the Board.‖
ii. in sub-regulation (4), after clause (d), the following clauses shall be inserted, namely,-
―(da) the details of investment of client’s funds by the portfolio manager in the
securities of its related parties or associates;
(db) the details of diversification policy of the portfolio manager:
Provided that the requirements specified above at clauses (da) and (db) above shall not
apply to such portfolio managers as may be specified by the Board:
Provided further that the Board may specify disclosure requirements other than the
requirements specified at clauses (da) and (db) above;‖
III. after sub-regulation (3) of regulation 24, the following sub-regulations shall be inserted,
namely,—
―(3A) The portfolio manager shall ensure compliance with the prudential limits on
investments as may be specified by the Board.
(3B) The prudential limits, as specified under sub-regulation (3A), shall be applicable at the
client level at the time of making investments by the portfolio managers.
(3C) The portfolio manager shall not be allowed to invest clients’ funds in unrated securities
of their related parties or their associates.
Explanation. ─ For the purposes of sub-regulation (3C), the term "associate" shall mean–
(i) a body corporate in which a director or partner of the portfolio manager holds,
either individually or collectively, more than twenty percent of its paid-up equity share
capital or partnership interest, as the case may be; or
(ii) a body corporate which holds, either individually or collectively, more than twenty
percent of the paid-up equity share capital or partnership interest, as the case may be
of the portfolio manager.
(3D) The portfolio manager shall put in place an alert based system to monitor compliance
with the prudential limits on investments.
(3E) The portfolio manager shall ensure investment of its clients’ funds on the basis of the
credit rating of securities as may be specified by the Board:[भाग III—खण् ड 4] भारत का रािपत्र : असाधारण 7
Provided that the requirements under sub-regulations (3A), (3B), (3C) and (3E) shall not
apply to investments made prior to the coming into force of the Securities and Exchange
Board of India (Portfolio Managers) (Amendment) Regulations, 2022:
Provided further that the requirements under sub-regulations (3A), (3B), (3C), (3D) and (3E)
shall not apply to such portfolio managers as may be specified by the Board.‖
IV. in Schedule V, after clause (14), the following clause shall be inserted, namely,-
“15) Details of investments in the securities of related parties of the portfolio manager
The details of investment of client’s funds by the portfolio manager in the securities of its
related parties or associates.
16) Details of the diversification policy of the portfolio manager
The details of the diversification policy of the portfolio manager for the portfolio of the
clients.‖
MADHABI PURI BUCH , Chairman
[ADVT.-III/4/Exty./224/2022-23]
Footnote:
1. The Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020, were
published in the Gazette of India on January 16, 2020 vide No. SEBI/LAD-NRO/GN/2020/03.
2. The Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020 were
subsequently amended on, –
a. 17th April, 2020 by the Securities and Exchange Board of India (Regulatory Sandbox)
(Amendment) Regulations, 2020 vide No. SEBI/LAD-NRO/GN/2020/10.
b. 16th March, 2021 by the Securities and Exchange Board of India (Portfolio
Managers) (Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/10.
c. 26th April, 2021 by the Securities and Exchange Board of India (Portfolio Managers) (Second
Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/16.
d. 3rd August, 2021 by the Securities and Exchange Board of India (Regulatory Sandbox)
(Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/30.
e. 3rd August, 2021 by the Securities and Exchange Board of India (Portfolio Managers)
(Third Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/31
f. 9th November, 2021 by the Securities and Exchange Board of India (Portfolio Managers)
(Fourth Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/58.
Uploaded by Dte. of Printing at Government of India Press, Ring Road, Mayapuri, New Delhi-110064
and Published by the Controller of Publications, Delhi-110054.