What happens when a regulator reduces direct gatekeeping and relies more and more on regulated intermediaries to provide assurances of disclosure? SEBI’s circular dated 30th April 2026 introducing a fast-track mechanism for Alternative Investment Funds (AIFs), ), appears to reflect precisely such a shift. It enables non-Large Value Funds (non-LVF) schemes to launch 30 days after submitting their Private Placement Memorandum (PPM). According to SEBI, the rationale behind this circular is to promote ease of doing business and efficiency. The SEBI seems to have decided that excessive pre-launch scrutiny might no longer be required for AIF schemes, given the sophistication of the investors and the due-diligence expected from the intermediaries. It indicates a growing trend towards disclosure-based regulation imposing intermediary accountability instead of direct regulatory supervision at the pre-launch stage.
From Ex-Ante to Ex-Post Regulation
Ex-ante regulation works on a prevention-oriented approach, while ex-post regulation relies on monitoring and punishment following the activity’s occurrence. Previously, under the SEBI (AIF) Regulations, 2012, and the 2024 Master circular, SEBI used to issue comments on the draft PPMs, following which revised PPMs were submitted by the merchant banker and AIF before the scheme could effectively proceed to launch.
Ex-ante regulation emphasises prevention before an activity occurs, whereas ex-post regulation depends on monitoring and penalising after the occurrence of the activity. Previously, under SEBI (AIF) Regulations, 2012, and the 2024 Master circular, SEBI issued comments on the draft PPMs, following which revised filings were submitted by the AIF and merchant banker before the scheme could effectively proceed to launch. However, under the new rules, Non-LVF AIFs may proceed after 30 days of filing a PPM, unless SEBI issues comments during these 30 days. But the launch of most schemes is no longer dependent on formal regulatory clearance. Merchant bankers and fund managers must certify disclosure accuracy before launch.
The circular does not eliminate ex-ante oversight entirely; rather, it substantially reduces SEBI’s direct pre-launch involvement. SEBI’s role under the new regime has become more limited at the pre-launch stage and increasingly dependent on post-facto enforcement mechanisms. In other words, SEBI has shifted primary responsibility for disclosure verification onto intermediaries while retaining enforcement powers.
These changes raises an important question: are ex-post regimes credible? Disclosure-based regimes are only effective if they can be enforced promptly and with some real ‘deterrent effect’. The effectiveness of such framework is dependent on the credible intermediary due diligence and enforcement capacity. If there is an error in PPM, delayed investigations will allow capital to be raised and deployed long before regulatory action is taken.
The change also mirrors the overall trends within disclosure-based global securities regulation. Rule 415 of the U.S. Securities Act, for example, allows securities to be sold on a ‘continuous or delayed basis,’ which helps to generate capital through ongoing disclosure processes rather than repeated transaction-specific review. Likewise, Regulation D exemptions under Rule 506 is based on the notion that these accredited or financially sophisticated investors are capable of assessing the risks of an investment on their own. For non-accredited investors, the SEC guidance under Rule 506(b) explicitly states that it requires the investor to have ‘sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment’. IOSCO’s Principles of Securities Regulation also highlight the importance of ‘full, accurate and timely disclosure’ of relevant information to investors.
Intermediary Accountability and the “Privatisation” of Gatekeeping
Gatekeepers are intermediaries responsible for reviewing offerings before market entry. Even before the 2026 circular, merchant bankers were required to furnish due diligence certifications alongside PPM filings. It states that merchant bankers and AIF managers are now explicitly accountable for the accuracy, completeness and adequacy of disclosures in the PPM. The filing still requires the merchant banker’s due diligence certificate. But SEBI adds a mandatory disclaimer to the PPM that SEBI does not approve or validate the document, the responsibility lies with the manager and merchant banker, and investors must rely on disclosures.
The circular, therefore, reflects a model of “regulated self-certification,” where intermediaries increasingly become the first line of disclosure assurance. However, these private gatekeepers face a conflict, i.e., they are paid by issuers and may be pressured to facilitate deals. This model presumes robust diligence by MBs and managers and that potential liability will keep them honest. The downside is that the disclosure gets overly legalistic, which means PPMs are written more for legal compliance than to be clear, and transparency is lost.
Similar intermediary accountability is also found in the comparable disclosure-driven regulatory regimes in the Indian securities laws. Under the Companies Act, 2013, sections 34 and 35 impose civil and criminal liability on any persons involved in the process of issuance of a prospectus for making a misleading statement in a prospectus, and Regulation 24 of the SEBI ICDR Regulations, 2018, makes lead manager responsible for exercising due diligence and assessing the veracity and adequacy of disclosure in offer documents. These frameworks consequently rely heavily on the intermediary’s disclosure responsibility and/or verification, even where the regulator itself does not endorse the offering substantially. This is only effective if the due diligence requirements are well established, and there are credible enforcement mechanisms in place. But, perhaps most importantly, the question is not only whether regulation is being “outsourced,” it is whether intermediary accountability can genuinely substitute intensive regulatory scrutiny without weakening investor protection.
Liability without Control
SEBI’s circular clearly imposes full responsibility on intermediaries for PPM disclosures. But do they have control or knowledge to justify that responsibility? Merchant bankers certify disclosures, but depend greatly on the information given by the issuer. They are not the individual managers of the fund, and cannot guarantee the accuracy of all factual statements or future projections in the PPM. This brings to the fore a crucial question of how far an intermediary should be held liable in situations of a high level of informational asymmetry between the intermediary and the issuer. It can result in:-
The excessive legal disclaimers, lengthier risk factors and highly technical drafting by bankers and managers in an effort to limit any liability exposure due to fear of SEBI action. These types of “defensive disclosure” can make PPMs harder to read and make the information that is commercially significant to investors difficult to see. This could mean that gatekeepers have to focus more on meeting the formal requirements of disclosure in the form of checklists and standardised clauses, rather than on transparency of their PPMs and less on disclosure. In an environment where liability is seen as broader, intermediaries’ focus might be on the mechanics of disclosure rather than substance.
This fast-track process can actually encourage “defensive compliance.” SEBI is seeking efficiency but it’s imposing a great degree of liability on private parties. Without proper tools and guidelines for dealing vetting, this liability can turn out to be heavier than can be carried. However, SEBI may make the case that greater liability is justified because merchant bankers are voluntarily doing due diligence certification and are expected to be diligent in their own verification of the disclosures before doing their certification. This raises a challenge to balance significant intermediary accountability with the practical limitations on what intermediaries can verify effectively.
What Would Make the Framework Work?
Whether the disclosure and enforcement of this is credible or not will be crucial for the success of SEBI’s fast-track framework. To effectively implement the above disclosure-based framework, SEBI might consider the following:
SEBI should provide more clarity on the scope of due diligence requirements of merchant bankers. The circular brings clarity about the explicit duty of merchant bankers and managers to make precise, sufficient, and complete disclosures. However, the extent of verification required of intermediaries remains unclear. SEBI may, therefore, issue clarifications on the extent to which the information provided by the issuer could be relied upon; the parameters for due diligence documentation; and the extent of “reasonable verification.” This would help to reduce uncertainty and eliminate all compliance practices, just defensive ones.
SEBI should develop the credibility of its enforcement capacity for its streamlined pre-launch model to be effective. However, if SEBI is to move towards more post-factum enforcement of disclosure violations, it must be able to detect and address these violations efficiently. To enhance enforcement, it may focus its review of complaints related to disclosures, take advantage of technology-assisted surveillance and data analytics to identify suspicious disclosure patterns.
Along with the number of disclosures, the quality of and usability of disclosures should be encouraged. PPMs may comply with the disclosure requirements but might not be effective in conveying the information meaningful to investors if they are excessively technical or legalistic in language. To this end, SEBI may want to mandate a briefing in a manner that is easy to understand, such as a “key information summary” that presents the material risks and conflicts of interest.
Last but not least, it is important to regularly check whether the fast-track process is achieving its objectives without compromising investor protection. SEBI could track some of the regulatory metrics, including but not limited to whether there are more disclosure failures when the launch takes place quickly, whether increased intermediary liability results in better compliance, and whether the new framework has led to better disclosure quality. Frequent reviews would allow SEBI to fine-tune the regime accordingly.
Final Take: SEBI’s proposed framework for the fast-track launch in 2026 is not a rejection of regulatory oversight in the AIF domain, but a rebalancing of the same. It shies away from heavy pre-launch scrutiny and gives more power to the intermediaries, which makes it a disclosure-based regulatory model for sophisticated investment markets. Its effectiveness will finally rely on issues such as the credibility of enforcement, the quality of the intermediary due diligence, and the scope of the merchant bankers/fund managers’ liability. Finally, whether intensive regulatory oversight can be effectively replaced by increased accountability of intermediaries remains to be seen.
Keywords – SEBI, Securities Law, AIF Regulation
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