SEBI Proposes Direct Reporting of AIF's PPM Changes to Cut Compliance Cost

Introduction:?

In a bid to enhance operational efficiency and reduce regulatory burdens for Alternative Investment Funds (AIFs), the Securities and Exchange Board of India (SEBI) has introduced significant proposals aimed at simplifying the process for updating Private Placement Memorandum (PPM). Under the proposed amendments, certain changes to the PPM of AIFs can now be directly communicated to SEBI, bypassing the involvement of merchant bankers.

Background:

SEBI, through its circular SEBI/HO/AFD/PoD/CIR/2024/028 dated April 29, 2024, has relaxed the reporting requirement for changes in PPM terms, acknowledging feedback from market participants. Previously, any alterations in the PPM had to be intimated to SEBI via a merchant banker along with a due diligence certificate. This process was perceived as burdensome and costly for AIFs.

Key Changes for PPM for Direct SEBI Filing:

1. Changes in specific sections of the PPM, can now be filed directly with SEBI. This includes?

• Change in contact details (address, phone number, etc.) of AIF, sponsor, manager, trustee, or custodian (unless regulatory approval is required or if the new details are for a foreign jurisdiction).

• Change of auditor, RTA, legal advisor, or tax advisor.
• Change in fund/scheme size.
• Change in information related to affiliates.
• Change in commitment period.
• Changes in the key investment team, with at least one key personnel meeting SEBI (AIF) Regulations.
• Changes in key management personnel (unless due to change in control of manager or sponsor).

• Change in advisory/investment/other committees (unless approving AIF decisions).
• Reduction in expenses, fees, or costs charged to the fund/investors.
• Inclusion or change of disclosures due to regulatory mandates.
• Other factual and routine updates (e.g., designation changes, qualifications, compliance officer, etc.).

2. Large Value Funds for Accredited Investors (LVFs) are exempt from the requirement of reporting PPM changes through a merchant banker. They can directly submit changes to SEBI along with an undertaking signed by the CEO and Compliance Officer of the AIF manager.?

Implications and Impacts:

• AIFs will benefit from reduced compliance costs associated with changes in PPM terms, particularly for routine updates and factual disclosures.
• The direct reporting mechanism simplifies the process, enabling AIFs to respond more swiftly to market dynamics without procedural delays.
• Despite the relaxation, SEBI emphasizes compliance with regulatory standards, ensuring transparency and investor protection remain paramount.

Conclusion:

In conclusion, SEBI’s initiative to allow direct reporting of PPM changes represents a proactive step towards enhancing the ease of doing business in the AIF sector. By exempting LVFs and identifying non-critical PPM changes that do not require merchant banker involvement, SEBI aims to strike a balance between regulatory oversight and operational efficiency. This regulatory update is poised to positively impact AIFs by fostering a more agile and cost-effective compliance environment.