SEBI Tightens Reins: New Certification Mandates for AIF Investment Teams

Key Takeaways:

1. SEBI mandates certification for key AIF investment team personnel.

2. NISM Series-XIX-C examination is the specified certification.

3. New regulation effective from May 10, 2024.

4. Existing schemes have until May 09, 2025 to comply.

5. Compliance to be included in the Compliance Test Report.

6. Aims to enhance investor protection and market regulation.

Detailed Narrative:

In a move to strengthen the regulatory framework for Alternative Investment Funds (AIFs), the Securities and Exchange Board of India (SEBI) has introduced new certification requirements for key investment team members of AIF managers. This significant development comes through SEBI Circular No. SEBI/HO/AFD-1/AFD-1-PoD/P/CIR/2024/42, issued on May 13, 2024.

The circular builds upon Regulation 4(g)(i) of the SEBI (Alternative Investment Funds) Regulations, 2012, which came into effect on May 10, 2024. This regulation stipulates that for an AIF to obtain registration, at least one key personnel in the manager's investment team must possess relevant certification as specified by SEBI.

To implement this requirement, SEBI has amended the SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007. The amendment, notified on May 10, 2024, specifies that at least one key personnel in the AIF manager's investment team must pass the NISM Series-XIX-C: Alternative Investment Fund Managers Certification Examination. This examination is detailed in the communiqué No. NISM/Certification/Series-XIX-C: Alternative Investment Fund Managers/2024/01, issued by the National Institute of Securities Market on January 10, 2024.

The circular outlines specific timelines for compliance:

1. For new applications: All applications for AIF registration and scheme launches filed after May 10, 2024, must meet this certification requirement as an eligibility criterion.

2. For existing schemes: AIFs with existing schemes and those with pending scheme launch applications as of May 10, 2024, have until May 09, 2025, to comply with the certification requirement.

To ensure adherence to these new regulations, SEBI has mandated that the trustee or sponsor of an AIF must include compliance with this circular in the 'Compliance Test Report'. This report is prepared by the manager as per paragraph 15.2 of SEBI Master Circular No. SEBI/HO/AFD-1/AFD-1-PoD/P/CIR/2024/39, dated May 07, 2024.

The circular, which came into immediate effect upon issuance, is rooted in the powers conferred to SEBI under Section 11(1) of the Securities and Exchange Board of India Act, 1992. This legislative backing underscores SEBI's commitment to protecting investor interests and promoting the development and regulation of the securities market.

By implementing these certification requirements, SEBI aims to enhance the professionalism and expertise within AIF management teams. This move is expected to boost investor confidence and contribute to the overall stability and growth of the alternative investment sector in India.

FAQs:

1. Q: Who needs to obtain the new certification?

A: At least one key personnel in the investment team of an AIF manager must obtain the certification.

2. Q: What is the specific certification required?

A: The NISM Series-XIX-C: Alternative Investment Fund Managers Certification Examination.

3. Q: When does this new requirement come into effect?

A: The requirement is effective from May 10, 2024, for new applications. Existing schemes have until May 09, 2025, to comply.

4. Q: Does this apply to all AIFs?

A: Yes, it applies to all AIFs, both new and existing.

5. Q: What happens if an AIF doesn't comply with this requirement?

A: Non-compliance could affect the AIF's registration status or ability to launch new schemes.

6. Q: Where can I find more information about this circular?

A: The full circular is available on the SEBI website under the categories "Legal framework – Circulars" and "Info for – Alternative Investment Funds".

Key Precedents:

1. SEBI (Alternative Investment Funds) Regulations, 2012: Regulation 4(g)(i) forms the basis for the new certification requirement.

2. SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007: Amended to include the specific certification requirement for AIF managers.

3. SEBI Master Circular No. SEBI/HO/AFD-1/AFD-1-PoD/P/CIR/2024/39 dated May 07, 2024: Paragraph 15.2 of this circular is referenced for the Compliance Test Report requirement.

4. NISM Communiqué No. NISM/Certification/Series-XIX-C: Alternative Investment Fund Managers/2024/01 dated January 10, 2024: Specifies details of the required certification examination.

5. Securities and Exchange Board of India Act, 1992: Section 11(1) provides SEBI with the authority to issue this circular for investor protection and market regulation.

These precedents collectively establish the legal and regulatory framework for the new certification requirements, demonstrating SEBI's evolving approach to AIF regulation and governance.