Sebi on Friday proposed stricter norms for Alternative Investment Funds (AIFs), its managers and key personnel as the instrument is being used to facilitate evergreen lending of stressed loans and circumvent other financial sector regulations.
According to a consultation paper issued by SEBI, the proposal aims to enhance confidence in the Alternative Investment Fund (AIF) ecosystem to improve ease of doing business.
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Sebi said, “Although the AIF industry has recorded strong growth over the last few years, there have been several instances of AIFs being structured to facilitate circumvention of various financial sector regulations, thereby undermining confidence in the system.” Is.”
It said that to ensure continued capital formation, it is important to take steps to restore confidence and prevent such frauds, while also ensuring minimal impact on legitimate AIF investments.
In its consultation paper, SEBI has proposed to introduce a general obligation in the existing AIF rules, which would require AIFs, managers and their key management personnel (KMPs) to ensure that their operations and investments are regulated by any financial sector. The rules do not allow manipulation. regulator.
The regulator said the increased confidence resulting from such a process, along with the process to verify adherence to relevant standards, would facilitate the regulator in considering other proposals for ease of doing business related to AIFs, which may be subject to scrutiny with SEBI. Are subject to.
The Securities and Exchange Board of India (SEBI) has invited comments from the public on the proposals till February 11.
Compared to other SEBI-registered investment channels such as mutual funds and portfolio management services (PMS), AIFs have a relatively light regulatory regime.
“Over the last few months, SEBI has come to the notice of more than 40 cases involving Rs 30,000 crore (out of about Rs 3.5 lakh crore of investments) where AIFs were structured to facilitate circumvention of certain financial sector regulations. Appears to be,” it said. ,
Some of the identified modalities where AIFs are being structured to facilitate manipulation of the regulatory framework of the financial sector are such as perpetual extension of loans by regulated lenders and FEMA as well as QIB (Qualified Institutional Buyer ) manipulation of parameters. AIFs have been set up resulting in greenwashing of stressed loans of some regulated lenders, thereby bypassing RBI rules and disclosure requirements around asset restructuring and identification of non-performing assets.
“The violations identified have already reached significant levels (over Rs 30,000 crore out of approximately Rs 3.5 lakh crore investment) and SEBI has not yet completed its thematic inspection. Such practices seriously impact the overall confidence and integrity of the AIF ecosystem,” SEBI said.
(This story has not been edited by News18 staff and is published from a syndicated news agency feed – PTI)
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