The Securities and Exchange Board of India (SEBI) recently issued a circular (SEBI/HO/AFD/SEC-1/P/CIR/2024/22) on April 18, 2024, addressing the standardization of Private Placement Memorandum (PPM) Audit Reports for Alternative Investment Funds (AIFs). This initiative aims to streamline compliance procedures and enhance reporting efficiency for AIFs.
Detailed Analysis
1. Regulatory Framework: SEBI mandates annual audits of compliance with PPM terms for AIFs under Regulation 28 of SEBI (AIF) Regulations, 2012, and Clause 2.4 of the SEBI Master Circular dated July 31, 2023. Compliance audits are essential for ensuring transparency and investor protection within the AIF sector.
2. Standard Reporting Format: To establish uniformity in compliance standards, SEBI, in collaboration with the Standard Setting Forum for AIFs (SFA), has developed a standardized reporting format for PPM Audit Reports. This format caters to various categories of AIFs and is designed to simplify reporting procedures.
3. Website Hosting and Assistance: The standardized reporting format will be accessible on AIF Association websites affiliated with the SFA. These associations will provide guidance to AIFs regarding reporting requirements and offer assistance in resolving any issues related to reporting, ensuring accuracy and timeliness in submissions.
4. Online Submission: AIFs are required to submit their PPM Audit Reports to SEBI online through the SEBI Intermediary Portal (SI Portal) using the prescribed format. This digitized submission process enhances efficiency and ensures regulatory compliance.
5. Optional Audit Sections: While certain sections of the PPM, such as ‘Risk Factors’ and ‘Legal, Regulatory, and Tax Considerations,’ are mandatory for audit, others like ‘Illustration of Fees and Expenses’ and ‘Glossary and Terms’ are optional. This provision provides flexibility to AIFs based on their specific requirements.
6. Continual Review: Recognizing the dynamic nature of the AIF industry, SEBI and the pilot SFA will periodically review the reporting format to align with evolving regulatory needs. Any revisions to the format will be promptly communicated and made available on affiliated association websites.
Conclusion
SEBI’s circular on standardizing PPM Audit Reports signifies a proactive approach towards enhancing transparency and regulatory compliance within the AIF sector. By introducing a standardized reporting format and facilitating online submissions, SEBI aims to foster investor confidence and promote the sustainable growth of the securities market. A collaborative effort between regulatory authorities and industry stakeholders is crucial in achieving these objectives.
This detailed article explores SEBI’s circular on standardizing PPM Audit Reports for AIFs, offering insights into the regulatory framework, the rationale behind the initiative, and its implications for the AIF industry.
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Securities and Exchange Board of India
Circular No. SEBI/HO/AFD/SEC-1/P/CIR/2024/22 Dated: April 18, 2024
To
All Alternative Investment Funds (AIFs)
Sir/ Madam,
Sub: Circular on Standardization of the Private Placement Memorandum (PPM) Audit Report
1. In terms of Regulation 28 of SEBI (AIF) Regulations, 2012 and Clause 2.4 of SEBI Master Circular SEBI /HO /AFD /PoD1 /P /CIR /2023/130 dated July 31, 2023 (Master Circular) it is mandatory for AIFs to carry out an annual audit of compliance with the terms of Private Placement Memorandum (PPM). In terms of Clause 2.4.2 of Master Circular, AIFs are required to submit Annual PPM Audit Reports to the Trustee or Board of Directors or Designated Partners of the AIF, Board of directors or Designated Partners of the Manager and SEBI, within 6 months from the end of the Financial Year.
2. In order to have uniform compliance standards and for ease of compliance reporting, standard reporting format for PPM Audit Report applicable to various categories of AIF has been prepared in consultation with pilot Standard Setting Forum for AIFs (SFA).
3. The said reporting format shall be hosted on the websites of the AIF Associations which are part of SFA within 2 working days of issuance of this circular. The associations shall assist all AIFs in understanding the reporting requirements and in clarifying or resolving any issues which may arise in connection with reporting to ensure accurate and timely reporting.
4. The PPM audit reports shall be submitted to SEBI by AIFs online on the SEBI Intermediary Portal (SI Portal) as per the aforesaid format.
5. In terms of Clause 2.4.1 of Master Circular audit of sections of PPM relating to ‘Risk Factors’, ‘Legal, Regulatory and Tax Considerations’ and ‘Track Record of First Time Managers’ shall be optional. In addition, ‘Illustration of Fees and Expenses’ and ‘Glossary and Terms’ shall also be optional.
6. All other provisions with respect to the filing of the PPM audit report specified in the Master circular shall remain unchanged.
7. The reporting requirement mentioned at paragraph 3 above shall be applicable for PPM audit reports to be filed for the Financial Year ending March 31, 2024 onwards.
8. To keep pace with the fast-changing landscape of AIF industry and for policy and supervision purposes, the aforesaid reporting format shall be reviewed periodically by pilot SFA in consultation with SEBI. In case of any revisions in the reporting format, revised format shall be made available on websites of the Associations which are part of SFA.
9. This Circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 to protect the interest of investors in securities and to promote the development of, and to regulate the securities the securities market.
10. This Circular is available on the SEBI website at sebi.gov.in under the categories “Legal Framework” and under the drop down “Circulars” and “Info for – Alternative Investment Funds”.
Yours faithfully,
Rajesh Gujjar
General Manager
Tel no.: +91-22-26449232
[email protected]
