Sebi issues consultation paper on OFM norms

Capital markets regulator Securities and Exchange Board of India (Sebi) has issued a consultation paper proposing changes to regulations regarding portfolio managers to enable fund managers to handle foreign money from Indian shores.

The amendments were approved by Sebi's board at a meeting held on June 17.

Within the consultation paper, Sebi has proposed to insert offshore fund managers (OFMs) or eligible fund managers (EFMs) as a new chapter in the existing norms.

The change may allow Sebi registered portfolio managers to act as offshore fund managers with prior intimation to Sebi.

Eligible fund managers/offshore fund manager acting on behalf of an eligible investment fund (EIF) can register under the PMS regulation, subject to conditions.

Sebi has said in the paper, issued on Tuesday, offshore fund manager will be required to have a minimum networth of Rs 2 crore apart from appointment of a principal officer and a minimum of two employees with requisite qualification and experiences. Among other changes, they have to also declare compliance under provisions of Section 9 A of the Income Tax Act.

Recently, the government allowed a taxation incentive under Section 9A of the Income Tax Act for offshore fund managers who are keen to relocate to India. A new section in the Act says fund management activity carried out through an EFM located in India and acting on behalf of an EIF would not constitute a business connection in India.

Sebi has also proposed certain obligations and responsibilities of OFMs. According to it, they are required to segregate funds and securities of EIFs from their other clients and maintain books of accounts pertaining to their activities as a portfolio manager to EIFs. OFMs require to maintain any additional records as specified by Sebi and disclose this when required.

Besides, they have to provide information to the regulator on a half-yearly basis, such as name and jurisdiction of the EIF managed by it, assets under management of each EIF and its breakup according to the nature of services provided to it.

They also need to comply with the code of and ensure compliance under the Prevention of Money Laundering Act (PMLA).

However, certain provisions for existing portfolio managers would not be applicable to OFMs. They are exempted from the terms of agreement between an EIF and EFM, which may vary depending on the jurisdiction and business requirements of EIF. The EIF may not have to comply with the corpus requirements according to the provisions which say the monthly average of the corpus shall not be less than Rs 100 crore.

Besides, lending and borrowing of clients' securities and funds by the portfolio manager upon agreed terms and the regulatory requirements of jurisdiction of EIF, is also not applicable.

These apart, the terms of the audit of portfolios of OFMs and reports to the regulator about the performance are also part of the exemption.

Sebi has invited public comments, and the deadline for submissions is July 3.