SEBI Amends AIF Investor On-boarding Framework for Compliance

Key Takeaways:

1. Investor Criteria: AIFs are allowed to raise funds from Indian, foreign, or non-resident Indian investors through the issuance of units.

2. Sanctions List: AIF managers must ensure that investors or their beneficial owners are not listed in the sanctions list by the United Nations Security Council.

3. FATF Compliance: Investors should not be residents in countries identified by FATF as having strategic anti-money laundering or terrorism financing deficiencies.

4. Non-Compliance Restrictions: AIF managers are prohibited from drawing further capital contributions from non-compliant investors until they meet the specified conditions.

The Securities and Exchange Board of India (SEBI) has made amendments to the framework for on-boarding investors in Alternative Investment Funds (AIFs) in response to changes in the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005. The amendments are designed to ensure compliance with international sanctions and anti-money laundering measures in the context of AIF investments.

Key Changes

1. Investor Criteria: Regulation 10(a) of AIF norms previously allowed AIFs to raise funds from various types of investors, including Indian, foreign, or non-resident Indians, through the issuance of units.

2. Sanctions List: SEBI’s circular now mandates that AIF managers must ensure that the investor or its beneficial owner is not listed in the sanctions list by the United Nations Security Council.

3. FATF Compliance: Additionally, the investor should not be a resident in a country identified by the Financial Action Task Force (FATF) as having strategic anti-money laundering or combating the financing of terrorism deficiencies, subject to countermeasures, or a jurisdiction making insufficient progress in addressing these deficiencies.

4. Non-Compliance: If an investor who has previously joined the AIF no longer meets these conditions, the AIF manager is prohibited from drawing further capital contributions from that investor for making investments until the investor complies with the specified conditions.

Implications

These changes are aimed at ensuring that AIF investments comply with international sanctions and anti-money laundering measures. By imposing restrictions on investors who do not meet the specified conditions, SEBI seeks to enhance the integrity and transparency of AIF investments.

Conclusion

SEBI’s amendments to the framework for on-boarding investors in AIFs reflect its commitment to aligning with international standards for preventing money laundering and combating the financing of terrorism. These changes are intended to strengthen the regulatory framework and promote the integrity of AIF investments.

Citations

The information provided in this response is based on the article “Sebi tweaks rule for on-boarding investors in Alternative Investment Funds” and the circular issued by the Securities and Exchange Board of India (SEBI).

FAQ

Q1: What prompted SEBI to make these amendments?

A1: The amendments were made in response to changes in the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005, to ensure compliance with international sanctions and anti-money laundering measures in AIF investments.

Q2: What are the consequences of non-compliance by investors?

A2: Non-compliance may result in restrictions on further capital contributions from the investor until they meet the specified conditions, as mandated by SEBI.

Q3: How do these amendments impact the AIF industry?

A3: These amendments are designed to enhance the integrity and transparency of AIF investments by aligning with international standards for preventing money laundering and combating the financing of terrorism.