investment advisors in IFSC

SEBI circular dated 28th September, 2020 amending the Operating Guidelines for Investment Advisors in International Financial Services Centres. Gist follows:

i. Clause 3 of the operating guidelines read with para 3 of circular dated February 28, 2020 is amended as follows-
“3. The following persons shall be eligible to apply to the Board for registration as an Investment Adviser in IFSC:
a. Any entity, being a company or a limited liability partnership (LLP) or any other similar structure recognised under the laws of its parent jurisdiction, desirous of operating in IFSC as an Investment Adviser (IA), may form a company or LLP to provide investment advisory services.
b. The formation of a separate company or LLP shall not be applicable in case the applicant is already a company or LLP in IFSC.”

The earlier clause stipulated net worth criteria which has been removed. Net worth stipulation is appearing in another clause 8.

“Clause 4 is amended as follows – 4. Persons seeking registration under the Investment Adviser Regulations read with these Guidelines shall provide investment advisory services only to those persons referred in Clause 9 (3) of the IFSC Guidelines. Further, IAs shall ensure to comply with the applicable guidelines issued by the relevant overseas regulator/ authority, while dealing with persons resident outside India and non-resident Indians seeking investment advisory services from them.”

Earlier the onus to comply with the IA guidelines in case of persons being resident outside India and non-resident Indians were on the non residents themselves. Now it has been changed to ensure that the IAs have to comply with the applicable guidelines issued by the relevant overseas regulatory/ authority while dealing with non resident clients.

Clause 8(c) of the operating guidelines is amended as follows-
“c. The IA/ parent entity shall fulfil the aforesaid net worth requirement, separately and independently for each activity undertaken by it under the relevant regulations.”

Clause 8(c) should be read with Clause 8(a) and (b) to understand it better.

  1. Net Worth Requirement [Corresponding Regulation in Investment Adviser Regulations-
    In case of applicants referred to in para 3, the net worth requirement shall be as under:
    a. An applicant shall have a net worth of not less than USD 1.5 million.
    b. In case the IA is set up as a subsidiary, the net worth requirement is to be met by the subsidiary itself. However, if the subsidiary does not meet the criteria, the net worth of the parent can be considered.

The earlier 8(c) said that the IAs shall fulfill the aforesaid net worth requirement. Now the amended 8(c) stipulates that either the IA or its parent entity shall fulfill the aforesaid net worth requirement.

Clause 9 of the operating guidelines is amended as follows-
“9. An IA shall ensure to conduct annual audit in respect of compliance with
Investment Adviser Regulations and these guidelines from a chartered accountant or a company secretary.”

The earlier clause 9 stipulated as follows:

  1. An IA shall ensure to conduct annual audit in respect of compliance with Investment Adviser Regulations and these guidelines from a chartered accountant or a company secretary or its equivalent under the laws in force of the country in which the applicant is registered or
    incorporated.

The earlier clause was little confusing, it was not clear the last part of the paragraph referred to the auditors or the regulations. The amended clause is much more satisfactory.

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