Sebi Mandates Due Diligence for AIF Investors

New Delhi, Oct 8 (PTI) Markets watchdog Sebi on Tuesday directed Alternative Investment Funds and their managers to exercise specific due diligence with respect to investors and investments in a bid to prevent circumvention of various laws and ensure compliance with regulatory frameworks.

In its circular, Sebi said that AIFs, their managers, and key personnel are required to conduct the due diligence on their investors and investments.

Under this, AIFs designated as Qualified Institutional Buyers (QIBs) or Qualified Buyers (QBs) must ensure that investors who are not eligible for QIB or QB status on their own do not avail of the respective benefits through the AIF.

Additionally AIFs are required to avoid facilitating the ever-greening of stressed loans/assets for RBI-regulated entities, adhering to RBI's norms for income recognition, asset classification, provisioning, and restructuring.

Sebi said that due diligence is required for investments from countries sharing land borders with India, in line with the Foreign Exchange Management Rules. If any investor or group of investors contributes 50 per cent or more to the AIF's scheme, detailed due diligence is required, the regulator said.

If the scheme includes RBI-regulated entities, additional checks are necessary to ensure compliance with norms, it added.

For existing investments, AIFs need to report any that fail the due diligence checks or confirm compliance by April 7, 2025.

In case, due diligence is not passed, the investor may be excluded from the investment or the investment will not proceed. Further, AIF managers must submit reports on the status of existing investments by April 7, 2025.

This framework are aimed at ensuring that AIFs are conducting thorough due diligence to maintain transparency and compliance with Securities and Exchange Board of India (Sebi), Reserve Bank of India (RBI), and other relevant regulations.