Now, AIFs, Managers And KMPs Need To Carry Out Due Diligence Of Investors, Investments

The Securities and Exchange Board of India (SEBI) has said that alternative investment funds (AIFs), AIF managers and their key management personnel (KMPs) will now have to conduct specific due diligence of their investors and investments.

SEBI said in a statement after a meeting with its Board on Friday (March 15) that this measure aims to prevent AIFs from bypassing specified regulations set by financial sector regulators. 

The statement added that implementing these due diligence requirements will ensure verifiable compliance, providing regulatory assurance needed to introduce other ease of doing business (EoDB) proposals or measures for AIFs, thereby promoting continuous capital formation. Standards outlining these procedures will be issued shortly.

“To ensure that the due-diligence requirements are not open-ended or subject to interpretation,  the specific implementation standards for verifiable due diligence to be conducted on investors and investments of AIFs shall be formulated by the pilot Industry Standards Forum for AIFs, in consultation with SEBI,” it said.

Besides, the Board approved a proposal allowing AIFs to handle unliquidated investments, which are not sold due to lack of liquidity during the winding-up process, by continuing to hold such investments in the same scheme of the AIF and entering into a dissolution period. 

The value of these investments carried forward into the dissolution period will be recognised according to SEBI norms for tracking the manager’s performance and reporting to performance benchmarking agencies. 

This option of entering a dissolution period replaces the previous choice of launching a new scheme (Liquidation Scheme). Moreover, the Board also approved providing a one-year extension to AIF schemes to manage unliquidated investments beyond their liquidation period, subject to specific conditions.