The Ministry of Finance has asked the Securities and Exchange Board of India (SEBI) to exempt state-run Alternate Investment Funds (AIFs) from the regulator's new oversight rules.
The ministry’s Department of Economic Affairs has asked SEBI to provide government sponsored AIFs with “special exemption” from a set of rules dictating liability, implemented in September 2020, two sources told The Economic Times.
Moneycontrol could not independently verify the report.
The rules in question hold an AIF’s investment committee also accountable for regulatory lapses, as against previously when only fund managers and full-time employees were liable. Investment committees are advisory bodies and have no role in daily operations.
However, since state-sponsored AIFs have senior bureaucrats and external experts on investment committees, the Centre wants to ensure exemption from regulatory action against its officials in case of operational lapses, the report said.
A source said that since the investment committees for these funds are “appointed by the Centre to take decisions on investment or divestment only, you cannot hold them responsible unless it is established that the decisions were as a result of fraud, gross negligence or misrepresentation.”
The Finance Ministry and SEBI did not respond to queries, as per the report.
The Centre notably uses AIFs to float specialised funds to invest in real estate and infrastructure. Government-sponsored AIFs include the National Investment and Infrastructure Fund (NIIF).
SEBI has got several requests from industry bodies seeking relaxation on investment committees and even took up the matter for discussion during its board meeting in December 2020.
One proposal included exempting investment committees from liability in cases where each investor of the AIF has a minimum ticket size of Rs 70 crore. There has however, been no further update or clarification on this.