Call for Public Comments on the Draft International Financial Services Centers Authority (Funds Management) Regulations 2022 | Odisha News | Latest news from Odisha
New Delhi: Authority of International Financial Services Centers (IFSCA), in its efforts to develop a comprehensive and consistent regulatory framework for investment funds based on global best practices with particular emphasis on the ease of doing business, had established an expert committee on investment funds. investment to recommend to IFSCA a roadmap for the fund industry in IFSCs. The committee was constituted under the chairmanship of Mr. Nilesh Shah, MD, Kotak Mahindra Asset Management Co. Ltd. and member of the Economic Advisory Council to the Prime Minister. The committee is made up of leaders from across the fund management ecosystem, including in areas such as technology, distribution, legal, compliance and operations.
The Committee had in turn set up three working groups to examine different issues related to the fund industry within the IFSC. During various meetings, the working groups interacted with various Indian and foreign market players, reviewed global best practices and made detailed recommendations. After examining the recommendations of the working groups, the Committee of Experts submitted its report to the President of the IFSCA on January 31, 2022 and it is available on the following link:
After consideration of the committee’s report, the IFSCA proposes to publish the IFSCA (Management of Funds) Regulations, 2022 and invites public comment thereon. The main features of the proposed regulation are as follows:
Single registration for several activities: A fund manager intending to undertake a multitude of fund management related activities viz. manage retail schemes (including exchange-traded funds), non-retail schemes (alternative investment funds), undertake portfolio management services or operate as a manager of various investment trusts (REITs and invite) may do so by applying for a single unified registration with the IFSCA. A fund manager intending to manage funds or business for non-retail investors only will have less stringent eligibility requirements. In addition, special registration with light requirements will be granted to a fund manager intending to invest in unlisted securities of start-ups, emerging or early-stage companies primarily involved in new products, new services and technology through a venture capital program in IFSC.
Detailed eligibility and regulatory requirements for fund managers, retail schemes, non-retail schemes, venture capital schemes, portfolio management services and investment trusts have been prescribed. Substantive requirements in terms of minimum key management personnel (KMP) with experience, infrastructure requirements, key activities such as management of IFSC investments, etc., have also been prescribed in the draft of settlement.
Green Route: Venture capital schemes or non-commercial schemes soliciting money from accredited investors only should be eligible for a green channel, i.e. the schemes filed may be opened for subscription by investors as soon as they are filed with the IFSCA. Requirements for system size, number of investors, permitted investments, etc. have been detailed in the draft regulations.
Exchange Traded Funds (ETFs): Because ETFs offer a way to gain exposure to specific markets or asset classes at low cost, fund managers registered with the IFSC will be able to launch not only index-based ETFs, but also active ETFs and commodity-based ETFs. Fund managers for gold and silver ETFs will also be able to invest directly in bullion certificates of deposit with underlying bullion, avoiding the need to invest in physical bullion and worry about quality or storage. Innovative structures for ETFs should be considered with the prior approval of IFSCA and the relevant exchanges. In order to ensure sufficient liquidity of ETFs, IFSC exchanges must prescribe a framework for market makers.
Stressed assets: Recognizing the important role of the IFSC in the government’s initiative to address the problem of NPAs faced by banks, a framework has been prescribed for special situation funds to be initiated by fund managers in the IFSC.
Environment Social Governance (ESG): More and more investors expect fund managers to integrate ESG issues into their investment strategies. In an effort to make the IFSC a hub for activities related to sustainable finance, it has been proposed that disclosures should be mandatory at the entity and system level.
Family office: Overall, there is a growing need for a formal structure to manage and preserve the wealth of HNIs and Ultra HNIs and their families. This made it necessary to conceptualize a regime for family offices in India. Accordingly, a framework to facilitate family office self-managed investment funds has been proposed. In addition, a fund manager was also authorized to undertake portfolio management for a multi-family office.
To support various novelties in a controlled manner, the following elements have also been included in the draft regulations:
- Fund laboratory: A platform should be provided for ambitious fund managers to try new strategies in a controlled manner.
- Special Purpose Vehicle (SPV) as a co-investment structure: Similar to international jurisdictions, fund managers will be permitted to create SPVs under the main program to enable undertaking co-investment or leverage with the Fund/programme subject to certain conditions .
- Participation of retailers in private markets: There is a growing need to help investors in general to invest in private markets. Accordingly, it is proposed to facilitate retail closed systems to invest in unlisted securities subject to certain conditions.
In addition to the above, the draft regulations detail the role of various entities, prescribe a code of conduct, an advertising code, investment evaluation standards and important governance requirements. The consultation document as well as the draft regulations are available on the IFSCA website https://ifsca.gov.in/PublicConsultation. Comments/suggestions are invited from the general public and stakeholders on the draft regulations by February 28, 2022.