1. Sebi proposes easier rules for fund managers to move to India

Sebi proposes easier rules for fund managers to move to India

To make it easier for foreign fund managers keen to relocate to India, markets regulator Sebi's board today approved a proposal to allow them to act as 'Portfolio Managers' ...

By: | New Delhi | Updated: June 17, 2016 8:31 PM

To make it easier for foreign fund managers keen to relocate to India, markets regulator Sebi’s board today approved a proposal to allow them to act as ‘Portfolio Managers’ under a relaxed regulatory regime.

The move assumes significance in the wake of the government already having announced taxation incentives for the offshore fund managers willing to relocate to India.

At a meeting here today, Sebi’s board approved issuance of a consultation paper for ‘amendments to the Sebi (Portfolio Managers) Regulations, 1993’, which would make it easier for the overseas funds to relocate to Indian shores.

The proposed amendments include a separate section on ‘Eligible Fund Managers’ that would specify conditions that will apply to their activities as portfolio managers.

The new rules would also specify the procedure to be followed by a Sebi-registered Portfolio Manager to function as an Eligible Fund Manager.

Besides, Sebi would lay out the procedure for registration of an existing foreign based fund manager desirous of relocating to India or a fresh applicant to function as an Eligible Fund Manager.

While listing out the obligations and responsibilities of Eligible Fund Managers, Sebi would specify non-applicability of certain provisions of Portfolio Managers Regulations on Eligible Fund Managers.

These provisions would include ‘High Water Mark Principle’ regarding calculation of fees, disclosure of fees, obligation to act in a fiduciary capacity and audit of overseas fund.

Besides, the rules regarding mandatory agreement between the portfolio manager and overseas fund, reporting about overseas fund and minimum investment requirements (Rs 25 lakh) would also not be applicable for such overseas funds.

After the board meeting, Sebi said the consultation paper would soon be put in public domain to seek comments from all stakeholders. The final rules would be framed accordingly.

After the announcement in the Union Budget, a new section was added to the Income Tax Act to provide that the fund management activity carried out through an Eligible Fund Manager (EFM) located in India and acting on behalf of an Eligible Investment Fund (EIF) would not constitute business connection in India of such a fund.

Following the issuance of notification by the tax department in this regard, Sebi held meetings with various stakeholders to discuss the registration framework for EFMs, during which several impediments were pointed out in the existing regulations for Investment Advisers and Portfolio Managers.

Subsequently, Sebi has now decided to initiate a consultation process for changes to its norms for Portfolio Managers while putting in place a framework for allowing EFMs to act as Portfolio Managers to their EIFs.

Among the proposed measures, an existing Sebi-registered Portfolio Manager will also be allowed to act as EFM with prior intimation from Sebi and subject to certain conditions.

Sebi also plans to put in place a procedure for registration of an existing foreign-based fund manager desirous of relocating to India, or as a fresh applicant.

Such applicants will be granted registration as Portfolio Managers to act as an EFM, provided they meet existing eligibility norms of being a body corporate, having net worth of Rs 2 crore, appointment of a Principal Officer and minimum two employees with requisite credentials.

The EFMs would be required to segregate the funds and securities of the EIFs from that of other clients, provide information to Sebi on a half-yearly basis, ensure compliance to the Prevention of Money Laundering Act and other regulations.

However, EFMs would be exempted from several provisions of the PMS Regulations with respect to the EIF, and would have to comply with the applicable regulatory and disclosure requirements of the jurisdiction of the EIF.

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