Flexibility for AIFs is not relaxation but more responsibility: Sebi WTM

Sebi whole-time member Sandip Pradhan said regulation of private markets will increasingly need to be proportionate, data-driven and risk-based as the sector expands

Regulatory flexibility for alternative investment funds (AIFs) should be seen as a transfer of greater responsibility to the industry, rather than merely a relaxation of norms, Securities and Exchange Board of India (Sebi) whole-time member Sandip Pradhan said on Wednesday.

 

Speaking at a Confederation of Indian Industry (CII) summit on alternative investments, Pradhan said regulation would increasingly need to be data-driven and risk-based.

 

“Today, the challenge is more nuanced. On one hand, the industry is seeking greater flexibility in areas such as investment structures, co-investment, leverage, governance arrangements and differentiated rights for sophisticated investors. On the other hand, the growing size and interconnectedness of private markets require us to pay greater attention to governance, conflicts of interest, valuation transparency and investor protection. Hence, we need to strike a balance,” he said.

 

 

Pradhan outlined three key priorities for the sector: proportionate regulation, improved data and risk-based supervision, and stronger governance.

 

On governance, he said investment committees, compliance officers, trustees and senior management must ensure that regulatory flexibility is exercised responsibly.

 

He urged the industry to come forward with “rigorous, data-backed” proposals, adding that a responsive regulatory framework could be co-created only through mature and proactive submissions.

 

Pradhan also said a circular detailing the approved changes to the accreditation framework would be issued soon.

 

The number of accredited investors currently stands at about 2,000, compared with roughly 100,000 AIF investors. The proposed changes could increase the number of accredited investors to about 400,000, the Sebi whole-time member added.