SEBI has issued a Circular providing for amendments to Operating Guidelines for Investment Advisers (IAs) in International Foreign Services Centre (IFSC). This was issued on 28th September 2020.
Pertinently, SEBI had first issued the Operating Guidelines on 9th January 2020 and had subsequently issued Clarifications by its Circular dated 28th February 2020.
By virtue of the present Circular, clauses 3, 4, 8(c) and 9 of the said Operating Guidelines have been amended as follows:
Clause 3 of the Operating Guidelines deals with eligibility to apply for registration as Investment Adviser in IFSC.
The amendment provides that any company or LLP that wishes to operate as an Investment Adviser in IFSC is required to form a company or LLP to provide investment advisory services.
In addition to the abovestated entities, the amendment now also permits ‘other similar structures recognised under the laws of the parent jurisdiction’ to apply for such registration. The amendment further clarifies that there is no necessity of forming a separate company or LLP in cases where the applicant is already a company of LLP in IFSC.
Clause 4 pertains to persons to whom investment advisory services may be offered
Clause 4 has been amended to clarify that when IAs offer investment advisory services to persons resident outside India or non-resident Indians they must comply with guidelines issued by the relevant overseas regulator or authority.
Prior to this amendment, the Guidelines had stated that these persons (i.e. persons resident outside India or non-resident Indians) were required to comply with the guidelines of the relevant overseas regulator and authority.
Clause 8 deals with the net worth requirements of applicants for registration as IAs
It is noteworthy that the net worth requirement was originally fixed at USD 1.5 million but was subsequently reduced to USD 700,000 on 28th February 2020.
Pertinently, clause 8(b) stated that if the IA that is a subsidiary it is required to meet the net worth requirement itself, however, if it cannot meet this requirement than the net worth of the parent is to be considered.
The present amendment has clarified that either the IAs or the parent entity must fulfil the net worth requirement. The requirement must be met separately and independently for each activity undertaken by it under the relevant regulations.
Clause 9 deals with annual audits
The amendment also states that IAs must conduct annual audits to endure compliance with Investment Adviser Regulations and the Operating Guidelines. The audit must be conducted by a Chartered Accountant (CA) or a company secretary (CS).
Prior to this amendment, the Guidelines allowed an equivalent to a CA/ CS to conduct the audit. However, this amendment has omitted that provision.
