Key Points SEBI's New Circular Pertains to Foreign Investment in Alternative Investment Funds (AIFs)

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Securities and Exchange Board of India (SEBI), pertains to foreign investment in Alternative Investment Funds (AIFs) and is a response to amendments made to the Prevention of Money Laundering (Maintenance of Records) Rules, 2005.

Key Points: (Date- 11th Jan 2024)

Beneficial Ownership Thresholds Revision: 

1. Amendments to the Prevention of Money Laundering Rules, 2005, revised thresholds for determining beneficial ownership.
2. Gazette notifications on March 07, 2023, and September 04, 2023, initiated these changes.

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Modification of SEBI Master Circular for AIFs (SEBI/HO/AFD/PoD1/P/CIR/2023/130):

1. Paragraph 4.1.2 under Chapter 4 of the SEBI Master Circular for AIFs has been modified.
2. Investors or their beneficial owners must not be individuals listed in the UN Security Council Sanctions List.
3. Investors or beneficial owners must not be residents in countries identified by the Financial Action Task Force (FATF) as having strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies.

Impact on On-boarded Investors:

1. If an already on-boarded investor fails to meet the revised conditions, the AIF manager cannot drawdown further capital contributions from that investor until compliance is achieved.

Immediate Implementation:

1. The circular's provisions are effective immediately from the date of issuance.

SEBI Authority and Legal Basis:

1. The circular is issued under the authority of Section 11(1) of the Securities and Exchange Board of India Act, 1992.
2. The objective is to protect investor interests in securities and regulate the securities market.

Access to Circular:

1. The circular is available on the SEBI website under the categories "Legal framework - Circulars" and "Info for - Alternative Investment Funds."
2. LINK: https://www.sebi.gov.in/legal/circulars/jan-2024/foreign-investment-in-alternative-investment-funds-aifs-_80593.html

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