15 SEBI Mandates Comprehensive Reporting Framework for Alternative Investment Funds

Key Takeaways:

- AIFs must submit quarterly reports on their investment activities to SEBI within 15 days from the end of each quarter.

- AIFs are required to prepare an annual Compliance Test Report (CTR) on adherence to AIF Regulations and SEBI circulars.

- Angel Funds must file a Term Sheet with SEBI within 10 days of launching a new scheme.

- AIFs must report their investments under custody to SEBI through a Standard Setting Forum, which will formulate reporting standards.

- The reporting framework aims to enhance transparency, accountability, and investor protection in the AIF industry.

Detailed Narrative:

The Securities and Exchange Board of India (SEBI) has introduced a comprehensive reporting framework for Alternative Investment Funds (AIFs) to promote transparency, accountability, and investor protection in the industry. This move is part of SEBI's efforts to strengthen the regulatory oversight and governance of AIFs, which have emerged as a significant investment vehicle in recent years.

Under the new reporting requirements, all AIFs are mandated to submit quarterly reports on their investment activities to SEBI within 15 calendar days from the end of each quarter. These reports must be submitted online through SEBI's intermediary portal, following the reporting format hosted by industry associations such as the Indian Venture and Alternate Capital Association (IVCA) and Equalify.

The industry associations will play a crucial role in assisting AIFs in understanding the reporting requirements and resolving any issues that may arise during the reporting process. This collaborative approach aims to ensure accurate and timely reporting by AIFs.

In addition to the quarterly reports, AIFs are required to prepare an annual Compliance Test Report (CTR) on their adherence to the AIF Regulations and SEBI circulars. The CTR must be submitted within 30 days from the end of the financial year to the trustee and sponsor (in case of a trust-based AIF) or the sponsor (in case of non-trust AIFs). The CTR format is specified in Annexure 12 of the SEBI Master Circular for AIFs.

Furthermore, Angel Funds, a sub-category of Venture Capital Funds under Category I AIFs, are required to file a Term Sheet with SEBI within 10 days of launching a new scheme. The Term Sheet must be submitted in the format specified in Annexure 13 of the SEBI Master Circular for AIFs and should contain material information regarding the scheme.

To enhance transparency and oversight of AIF investments under custody, SEBI has directed the formation of a Standard Setting Forum for AIFs (SFA). The SFA, in consultation with SEBI, will formulate implementation standards for reporting data on investments of AIFs that are under custody with the custodian. These standards will specify the format and modalities for reporting data by the AIF manager to the custodian and subsequently by the custodian to SEBI.

The reporting framework introduced by SEBI aims to promote transparency, accountability, and investor protection in the AIF industry. By mandating regular reporting and compliance checks, SEBI seeks to ensure that AIFs operate in accordance with the applicable regulations and circulars, safeguarding the interests of investors and fostering the development of a robust and well-governed AIF ecosystem.

FAQs:

Q1: Why has SEBI introduced this reporting framework for AIFs?

A1: SEBI has introduced this reporting framework to enhance transparency, accountability, and investor protection in the AIF industry. Regular reporting and compliance checks will ensure that AIFs operate in accordance with applicable regulations and circulars, safeguarding the interests of investors.

Q2: What are the key reporting requirements for AIFs under this framework?

A2: The key reporting requirements include quarterly reports on investment activities, annual Compliance Test Reports (CTRs), Term Sheets for Angel Funds, and reporting of investments under custody through a Standard Setting Forum.

Q3: How often do AIFs need to submit quarterly reports on investment activities?

A3: AIFs must submit quarterly reports on their investment activities to SEBI within 15 calendar days from the end of each quarter.

Q4: What is the purpose of the Compliance Test Report (CTR)?

A4: The CTR is an annual report prepared by the AIF manager to assess compliance with AIF Regulations and SEBI circulars. It must be submitted to the trustee and sponsor (in case of a trust-based AIF) or the sponsor (in case of non-trust AIFs) within 30 days from the end of the financial year.

Q5: What is the role of the Standard Setting Forum for AIFs (SFA)?

A5: The SFA, in consultation with SEBI, will formulate implementation standards for reporting data on investments of AIFs that are under custody with the custodian. These standards will specify the format and modalities for reporting data by the AIF manager to the custodian and subsequently by the custodian to SEBI.

Key Precedents:

1. SEBI Circular No. SEBI/HO/IMD/IMD-I/DOF6/CIR/2021/549 dated April 07, 2021:

This circular introduced the requirement for AIFs to submit quarterly reports on their investment activities to SEBI within 15 calendar days from the end of each quarter.

2. SEBI Circular No. CIR/IMD/DF/14/2014 dated June 19, 2014:

This circular mandated the preparation of an annual Compliance Test Report (CTR) by the AIF manager to assess compliance with AIF Regulations and SEBI circulars.

3. Annexure 12 of the SEBI Master Circular for AIFs:

This annexure specifies the format for the Compliance Test Report (CTR) to be submitted by AIFs.

4. Annexure 13 of the SEBI Master Circular for AIFs:

This annexure provides the format for the Term Sheet to be filed by Angel Funds within 10 days of launching a new scheme.

5. Regulation 20(11) of the AIF Regulations:

This regulation empowers SEBI to specify the manner in which the custodian shall report or disclose information regarding investments of the AIF under custody.

The reporting framework introduced by SEBI draws upon these precedents and circulars to establish a comprehensive and standardized approach to reporting and compliance monitoring for AIFs. By accurately referencing and incorporating these precedents, SEBI aims to strengthen the regulatory oversight and governance of the AIF industry.

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Here's AIF Circular's verbatim Chapter 15

Chapter 15 - Reporting bv AIFs

15.1. Reporting of investment activities by AIFs{44}

Under Regulation 28 of AIF Regulations, the Board may at any time call upon the Alternative Investment Fund to file such reports, as the Board may desire, with respect to the activities carried on by the Alternative Investment Fund. In this regard, the following reporting requirement is specified:

15.1.1. All AIFs shall submit report on their activity as an AIF to SEBI on quarterly basis within 15 calendar days from the end of each quarter in the reporting format hosted by AIF Industry Associations - Indian Venture and Alternate Capital Association (IVCA) and Equalifi (hereinafter referred to as ‘industry associations’), on their websites.

15.1.2. AIFs shall submit these reports online through SEBI intermediary Portal.

15.1.3. The industry associations shall assist all AIFs in understanding the reporting requirements and in clarifying or resolving any issues which may arise in connection with reporting, to ensure accurate and timely reporting.

15.1.4. 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 industry associations / any AIF Standard Setting Forum in consultation with SEBI. In case of any revisions in the reporting format, revised format shall be made available on websites of industry associations / the AIF Standard Setting Forum at least 1 month prior to end of the quarter.

15.2. Compliance Test Report (CTR){45}

15.2.1. At end of financial year, the manager of an AIF shall prepare a compliance test report on compliance with AIF Regulations and circulars issued thereunder in the format as specified in the Annexure 12.

15.2.2. The CTR shall be submitted within 30 days from the end of the financial year, to

(i) the trustee and sponsor, in case the AIF is a trust;

(ii) the sponsor, in case of AIF set up in the form other than a trust.

15.2.3. In case of any observations/comments on the CTR, the trustee/sponsor shall intimate the same to the manager within 30 days from the receipt of the CTR. Within 15 days from the date of receipt of such observations/ comments, the manager shall make necessary changes in the CTR, as may be required, and submit its reply to the trustee/sponsor.

15.2.4. In case any violation of AIF Regulations or circulars issued thereunder is observed by the trustee/sponsor, the same shall be intimated to SEBI as soon as possible.

15.3. Term Sheet - Angel Funds{46}

15.3.1. Angel funds may launch schemes subject to filing of a Term Sheet in the format as specified in Annexure 13.

15.3.2. Such Term Sheet shall contain material information regarding the scheme.

15.3.3. Such Term Sheet shall be filed with the Board within ten days of launching the scheme.

15.4. Reporting of investments of AIFs under custody{47}

In terms of Regulation 20(11) of AIF Regulations, the custodian shall report or disclose such information regarding investments of the AIF in such manner as may be specified by the Board from time to time. In this regard, the following is specified:

15.4.1. The pilot Standard Setting Forum for AIFs (‘SFA’), in consultation with SEBI, shall formulate implementation standards for reporting data on investments of AIFs that are under custody with the custodian. Such standards shall specify the format and modalities of reporting of data by the manager of AIF to the custodian and subsequently, by the custodian to SEBI.

15.4.2. Managers of AIFs and custodians shall adopt and adhere to such implementation standards, formulated by the SFA in consultation with SEBI. Such standards are to be published on websites of the industry associations which are part of the SFA, i.e., Indian Venture and Alternate Capital Association (IVCA), PE VC CFO Association and Trustee Association of India.

Note:-

{44}SEBI circular No. SEBI/HO/IMD/IMD-I/DOF6/CIR/2021/549 dated April 07, 2021 and SEBI circular no. SEBI/HO/AFD/SEC-1/P/CIR/2023/0155 dated September 14, 2023

{45}SEBI Circular No. CIR/IMD/DF/14/2014 dated June 19, 2014

{46}SEBI Circular No. CIR/IMD/DF1/102/2018 dated June 29, 2018

{47}SEBI Circular No. SEBI/HO/AFD/PoD/CIR/2024/5 dated January 12, 2024