SEBI Modifies Investor Onboarding Rules for AIFs to Strengthen Compliance

In a significant step to reinforce regulatory compliance and counter financial crimes, the Securities and Exchange Board of India (SEBI) has revised its guidelines concerning investor onboarding for Alternative Investment Funds (AIFs). SEBI, the capital markets authority, announced changes to its policies to align with global sanctions and initiatives against money laundering and terrorism financing.

Understanding the Amendments to Investor Onboarding

The modifications pertain to the regulatory framework that dictates the process by which AIFs enlist investors. These changes are reflective of the updates to the Prevention of Money-Laundering (Maintenance of Records) Rules that took place in 2005. According to SEBI's new directive, AIFs may continue to raise funds from an array of investors, including domestic, overseas, and non-resident Indians.

However, clarity is now provided on the due diligence AIF managers must perform. They are obliged to ensure that neither the investor nor their beneficial owners are on the United Nations Security Council's sanctions list. Moreover, investors should not be based in nations singled out by the Financial Action Task Force (FATF) for their deficiencies in anti-money laundering protocols or combating terrorism financing efforts.

SEBI's Criteria Prevention Measures

SEBI has specified that any capital contribution from existing investors who fail to abide by the mentioned criteria must be halted. This pause on capital inflow should remain until the investor rectifies these deficiencies and is in full compliance with the stipulated standards.

The rationale behind these regulatory tweaks is clear. SEBI aspires to maintain a firm adherence to international financial sanctions and fortify the Indian capital market against risks of money laundering and terrorism financing within the domain of AIF investments. The updated investor onboarding framework, which takes effect immediately, reflects SEBI's commitment to this goal.

SEBI, AIFs, Compliance