International Financial Services Centres Authority (IFSCA) has approved proposal and notification of amendments to the IFSCA (Fund Management) Regulations, 2022 (FM Regulations) released vide consultation paper dated August 5, 2024 and addendum to the said consultation paper dated August 17, 2024 (Consultation Paper) in its 42nd board meeting held on December 19, 2024. More details on the Consultation Paper can be found at LegIT by Saraf and Partners, Vol. I Issue 4.
Amendments have been introduced to promote ease of doing business, clarify intent of certain regulatory provisions and introduce safeguards for investors’ protection. However, the proposed amendments as approved, are subject to the following key changes:
- Non-retail schemes (venture capital schemes and restricted schemes)
- validity of the private placement memorandum (PPM) for the said schemes is increased to 12 months from existing six months from the date of IFSCA’s communication regarding taking the PPM on record. Additionally, investment activities may commence for open-ended schemes on achieving a corpus of USD One Million, however, the minimum corpus requirement of USD Three Million must be met in 12 months;
- fund management entities (FMEs)/its associates may contribute upto 100% in a scheme provided, FMEs/its associate and the ultimate beneficial owners are not resident in India and not more than 1/3rd of the corpus of such scheme is invested in one company and its associates;
- prior approval of 75% investors in a scheme by value is required before a scheme buys/sells securities from a major investor (who has committed to contribute at least 50% of the corpus). Here, the major investor will be excluded from the voting process; and
- if in a fund of funds (FoF) scheme, assets of the underlying fund are valued by independent service provider, then valuation of the scheme’s assets would not be required.
- Manpower requirements for FMEs
- appointment of key managerial personnel (KMPs) would only require a prior intimation to IFSCA, and appointment of an additional KMP for registered FME (Retail) may be done before filing of a retail scheme or exchange traded fund (ETF) with the IFSCA; and
- an additional KMP is required to be appointed where FMEs are managing assets under management (AUM) of atleast USD One Billion as at the close of a financial year. AUM of FoF scheme will not be considered while calculating AUM of FME. Further, employees of FMEs are to undergo certain certifications as would be specified by IFSCA.
- Registered FME (Retail) and Retail Schemes
- registered retail FMEs are now to meet a revised track record and net worth criteria;
- a similar exemption given to open-ended non-retail schemes (as mentioned above) is extended to open-ended retail schemes;
- cap on investment by a sectoral/thematic/index scheme in a single company will be linked to the weightage of that company in the representative index (by an independent entity) that the scheme intends to benchmark with or 15%, whichever is higher. Additionally, if in a FoF scheme, the underlying fund satisfies investment restriction criteria, then the retail scheme will be excluded from restrictions on investments; and
- listing a close-ended retail scheme is no more mandatory, but optional if each investor in the scheme has invested a minimum of at least USD 10,000.
- Other Key matters
- Non-retail and retail schemes may now invest in overnight schemes and bank deposits pending deployment of money;
- to encourage investor participation, minimum investment criteria to avail portfolio management services has been reduced from USD 150,000 to USD 75,000. Such clients under PMS can transfer their funds to a designated brokering account which can then be managed by FME under PMS, with additional safeguards in place; and
- FMEs are now permitted to open in other jurisdictions, branch or representative offices solely for marketing their offerings and client services.
Conclusion:
Revised FM Regulations are awaited and will be notified in the coming days.