Credit of Units of AIFs in Dematerialized Form:
The SEBI had recently issued a circular for compulsory dematerialization of the units of a scheme of an AIF. The timelines for complying with the Dematerialization of the units by the AIFs is as under:
SEBI has now released a Circular dated December 11, 2023, wherein they have provided that the AIF industry and depositories shall adopt implementation standards as formulated by the pilot Standard Setting Forum for AIFs (‘SFA’), along with the two depositories, in consultation with SEBI. The standards shall detail steps to be taken by AIF managers and depositories to reach out to investors and facilitate conversion and credit of their units in demat form. Units already issued by schemes of AIFs to existing investors who have not provided their demat account details, shall be credited to a separate demat account named “Aggregate Escrow Demat Account.” This account shall be opened by AIFs for the sole purpose of holding demat units of AIFs on behalf of such investors. New units of such investors to be issued in demat form shall be allotted to such investors and credited to the “Aggregate Escrow Demat Account.” Once the details of Demat accounts are provided by the investors, the units held in “Aggregate Escrow Demat Account” shall be transferred to the respective investors’ demat accounts within five (5) working days. The timelines with respect to the issuance and credit of units of AIFs in demat form are as follows:
Managers of all AIFs shall maintain investor wise KYC details of units held in Aggregate Escrow Demat Account, including name, PAN and bank account details, along with audit trail of the transactions and shall report to Depositories and Custodians monthly.
Regulatory Reporting by AIFs
AIFs are required to submit quarterly reports to SEBI with respect to the activities carried on each quarter on the SEBI (SI) portal. The due date for filing the same was ten (10) days from the end of the respective quarter. SEBI has now released a revised format for this reporting and has also updated the due date for the reporting of the same. Now, the due date for filing the same is fifteen (15) days from the end of the respective quarter. It may be further noted that in order to keep pace with the fast-changing landscape of AIF industry and for policy and supervision purposes, the aforesaid reporting format shall be reviewed periodically by association/any AIF Standard Setting Forum in consultation with SEBI. Also, in case of any revisions in the reporting format, revised format shall be made available on websites of association / the AIF Standard Setting Forum at least one (1) month prior to end of the quarter.
Validity of Period of Approval Granted by SEBI to AIFs and VCFs for Overseas Investment
The AIFs and VCFs are required to obtain a prior approval from SEBI for making the investments in offshore venture capital undertakings. In case the applicant AIF/VCF does not utilize the limits allocated within 6 months, SEBI may allocate such unutilized limit to other applicant AIFs/VCFs. Now, this aforesaid limit of six (6) months has been reduced to four (4) months. This reduction in time limit would ensure that the allocated limit is utilized efficiently and if unutilized, it is available to the AIF industry in a shorter span of time.
Mandating Additional Disclosures by FPIs
It had been observed that certain FPIs were holding concentrated portion of their equity portfolio in a single investee company or a corporate group. There were concerns that such entities could potentially disrupt the orderly functioning of Indian securities markets by misusing the FPI route. In order to mitigate the same, a need was felt to obtain granular information of persons having any ownership, economic interest, or control in some objectively identified FPIs. Granular details of all entities holding any ownership, economic interest, or exercising control in the FPI, on a full look through basis, up to the level of all natural persons, without any threshold, shall be provided by certain FPIs in the format specified. The FPIs which have to disclose the details in the above point are:
- FPIs holding more than 50% of their Indian equity Assets Under Management (AUM) in a single Indian corporate group.
- FPIs that individually, or along with their investor group, hold more than INR 25,000 crore of equity AUM in the Indian markets.
There are certain timelines provided for carrying out the necessary disclosures and complying with these guidelines. Non-disclosures in this regard shall render the registration of the FPI invalid and the FPI shall not make any further purchases. Certain FPIs who shall be required to provide this disclosure are:
- Government and Government related investorsPublic Retail Funds
- Exchange Traded Funds (with less than 50% exposure to India and India-related equity securities)
- Entities listed on notified Exchanges of the permissible jurisdictions, etc.
The entire detailed mechanism shall be spelt out in the Standard Operating Procedure (SOP) in these regards.
Mandating Legal Entity Identifier (“LEI”) for All Non-Individual FPIs
The LEI code is a unique 20-character global code to identify legally distinct entities that engage in financial transactions. As per the Circular issued by SEBI on July 27, 2023, all the Non-Individual FPIs in India must obtain and have an active LEI registration. As per the circular all FPIs have to submit their LEI number to Custodians within a period of 180 days from the aforesaid date of issuance of circular. In case of non-submission, the FPI’s account will be blocked from carrying out any fresh purchase until the LEI is provided to its Custodian. Also, the LEI registration is required to be active and renewed from time to time. In case the same is expired/lapsed, then the FPI’s account will be blocked from carrying out any fresh purchase till the time the LEI number is renewed. All fresh FPI registrations shall be carried out only after the receipt of the FPI’s respective LEI details.
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