SEBI has released a consultation paper titled ‘Consultation paper on proposal to enhance trust in the Alternative Investment Funds (AIF) ecosystem to facilitate Ease of Doing Business measures’ on January 19, 2024 for public comment. The paper highlights concerns wherein AIFs are being used as vehicles to circumvent other financial sector regulations. It is proposed that investment manager and its KMP be responsible to undertake additional due diligence to ensure that no such mischief takes place. Given the existing general obligations of fund managers, the rationale for introducing such an additional measure is not clear.
We put forth our takeaway on the proposal and why there may be better ways to mitigate the regulatory concerns.