SEBI (AIF) RECENT RULES REQUIRIING AIFS TO CONDUCT MANDATORY DUE DILIGENCE OF PORTFOLIO COMPANIES

By Jagrit Gupta | 6 min read

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WHAT THE REGULATOR SAYS

The Securities and Exchange Board of India (Alternative Investment Funds) (Second Amendment) Regulations, 2021, which came into effect on May 5, has mandated that fund managers & Trustees conduct due diligence to make sure that detailed policies and procedures are in place for investments and that provisions over confidentiality, conflict of interest, Prevention of Money Laundering Act (PMLA) and addressing investor complaints are complied with. The regulations mainly impact the private equity and venture capital funds that are registered under the Alternative Investment Funds Categories 1 & 2 and hedge funds registered under the AIF Category 3 in India. In cases where red flags are raised by an insider or a whistle blower the fund managers must conduct full-fledged investigations. Fund managers will also have to realign investments to comply with the new regulations, as SEBI has put a threshold on the money a fund can invest in a company or another investment vehicle.

Securities and Exchange Board of India

About SPC Group India :

Operating for over 70 years, SPC Group is a technology-focused accounting and advisory firm. Consistently ranked amongst the top Accounting firms in India, SPC is an Indian member firm of PrimeGlobal- An award-winning association of independent accounting firms, comprised of approximately 300 highly successful independent public accounting firms in over 90 countries.

 

The SEBI regulations are aimed at providing transparency to investors. The due diligence will have to be undertaken at the fund level as well as the investment level. AIFs to follow the regulator and not just undertake a “tick box” approach. The policies have to be approved, followed and kept up to date.

SEBI Updates

WHAT THE STATUTORY AUDITORS WANT?

 The auditors of the PPM (private placement memorandum) will be required to check on the detailed policy and procedures as well as the compliance with the code of conduct prescribed under the newly added fourth schedule. The format for reporting requirements to SEBI and trustees could also undergo a change. while most funds undertake these exercises, the new  regulations would likely require them to share the report or the procedures with the auditors. Auditors are demanding that fund managers inform them how they are making sure that there is no money laundering, conflict of interest or siphoning of funds happening amid the Covid-19 pandemic.

HOW SPC CAN HELP?

SPC Group with it’s established market presence of over 70 years in Delhi, Mumbai and North America; has conducted over 100 Due Diligences for mid to large transactions in their Business Advisory & Transaction Support Services division. We also have a Forensic Accounting and Fraud Prevention and Detection Division to cater to any investigation needs as well as a Policy division catering to Government Advisory.

We can assist you in undertaking Financial, Taxation and Legal DD as well as formulate and update detailed policies and procedures for compliance with investments and that provisions over confidentiality, conflict of interest, Prevention of Money Laundering Act (PMLA) and investor complaints.

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