OVERVIEW:

• The International Financial Services Centres Authority (IFSCA) has released a consultation paper on the ‘Review of IFSCA (Fund Management) Regulations, 2022, which is open for public comment until August 26, 2024

• The paper outlines proposed amendments aimed at enhancing the regulatory framework governing fund management in the IFSC.

• These changes are particularly focused on Restricted Schemes, which are non-retail in nature.

• Below is a detailed summary of the key proposals put forth for Restricted Schemes:

REMOVAL OF PPM FILING REQUIREMENT:

• As per the existing regulations, fund managers are required to file the Private Placement Memorandum (PPM) 21 working days prior to the launch of a scheme.

• The IFSCA proposes to eliminate this requirement, streamlining the process for launching new schemes.

• This move aligns with a circular issued earlier by the IFSCA that introduced the green channel route, which allows certain types of funds to be launched without prior regulatory approval.

EXTENSION OF PPM VALIDITY PERIOD: 

• The PPM, once filed, is valid for a period of 6 months, within which the fund manager must declare the first close of the scheme.

• The IFSCA proposes extending the validity of the PPM from 6 months to 12 months from the date of filing.

• It is also clarified that the first close of the scheme must occur within this extended 12-month period.

• This extension aligns with SEBI’s practice of providing 12 months from SEBI’s communication for taking the PPM on record before declaring the first closing.

• This extension provides fund managers with additional time to secure investor commitments, reducing the pressure to close a scheme within a shorter timeframe.

INTRODUCTION OF JOINT INVESTORS CONCEPT:

• Under existing regulations, investors are required to individually meet the minimum investment amount specified for Restricted Schemes.

• The IFSCA proposes to introduce the concept of joint investors, similar to the provisions under SEBI’s Alternative Investment Fund (AIF) Regulations.

• This would allow two investors to jointly meet the minimum investment amount, thereby enabling them to pool resources and participate in the scheme.

PRIOR APPROVAL FOR CONFLICTED TRANSACTIONS:

• Transactions that could result in conflicts of interest are typically subject to disclosure requirements, but prior approval from investors is not always mandated.

• In line with SEBI’s AIF Regulations, the IFSCA proposes that any conflicted transactions will require prior approval from 75% of the investors in the scheme.

• Requiring prior approval from a supermajority of investors provides a safeguard against decisions that could disproportionately benefit fund managers or other related parties at the expense of investors.

RELAXATION OF SPONSOR COMMITMENT CAP:

• There is currently a 10% cap on sponsor commitment to Restricted Schemes, which limits the extent to which sponsors can invest in their own funds.

• The IFSCA proposes to relax this 10% cap in select scenarios, particularly for captive funds managed by offshore managers.

• This is seen as a response to industry feedback and the unique needs of certain types of fund structures.

• By relaxing the cap, the IFSCA is providing more flexibility for sponsors, particularly those involved in captive funds or funds with significant offshore interests.

CONCLUSION:

• The proposed amendments to the IFSCA (Fund Management) Regulations, 2022, particularly concerning Restricted Schemes, represent a thoughtful and strategic effort to refine the regulatory framework governing non-retail funds.

• The removal of pre-launch PPM filing requirements, extension of PPM validity, introduction of joint investors, stricter conflict-of-interest safeguards, and relaxation of sponsor commitment caps are all steps in the right direction.

• These changes aim to strike a balance between maintaining robust regulatory oversight and providing fund managers with the flexibility they need to operate effectively in a competitive global market.

• They reflect the IFSCA’s commitment to fostering a dynamic and investor-friendly environment in the IFSC, which is crucial for its long-term success as a global financial hub.