By Aniket Jadhav, Associate Director, Taxation and Regulatory Reporting, and Mansi Vora, Manager, Investor Services
Navigating the complex tax and regulatory landscape can be challenging. Our tax and compliance experts in India have curated this quarterly update to keep you up to date on the latest tax and regulatory developments, news and enforcement actions in Mumbai and GIFT City. Here are our key takeaways from January to March 2025.
1. SEBI invites public comments on proposed amendments to AIF regulations
The Securities and Exchange Board of India (SEBI) released a consultation paper on 7 February 2025 seeking public comments on the review of Regulation 17(a) of the SEBI (Alternative Investment Funds) Regulations, 2012. This initiative aims to enhance the ease of doing business for Category II alternative investment funds (AIFs).
Current regulation
Regulation 17(a) requires Category II AIFs to invest primarily (more than 50% of their investible funds) in unlisted securities.
Other recent amendments and the impact on Category II AIFs
The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”) have been amended to introduce Regulation 62A, which requires that:
- A listed entity whose non-convertible debt securities (NCDs) are listed must list all NCDs proposed to be issued on or after 1 January 2024
- A listed entity proposing to list NCDs issued on or after 1 January 2024 must list all outstanding unlisted NCDs within three months of the listing date
Category II AIFs provide crucial funding to businesses that may not have access to traditional capital markets and have a high-risk appetite, however this requirement to list unlisted NCDs reduces the universe of permissible investments for Category II AIFs.
Proposed amendment to Regulation 17(a)
SEBI proposes expanding the definition of permitted investments to allow Category II AIFs to invest more than 50% of their total investible funds in unlisted securities and/or listed debt securities with a credit rating of ‘A’ or below.
This proposal aims to provide greater flexibility for Category II AIFs while ensuring they can continue to support businesses with limited access to traditional capital markets.
2. SEBI eases timelines for AIFs to hold investments in dematerialised form
On 14 February 2025, SEBI announced a significant relaxation in the timelines for AIFs to hold their investments in dematerialised (“demat”) form. This move aims to provide operational flexibility and ease compliance for AIFs.
Key points to note
- Investments made on or after 1 July 2025 must be held in demat form
- Investments made before 1 July 2025 are exempt from this requirement, except in specific cases
- If the investee company is legally required to facilitate dematerialisation of its securities, or if the AIF exercises control over the investee company, the investments must be converted into demat form by 31 October 2025
- AIF schemes whose tenure ends on or before 31 October 2025, or those already in an extended tenure as of 14 February 2025, are not required to transition to demat holdings
This update provides AIFs with additional time to comply with dematerialisation requirements, ensuring a smoother transition without disrupting existing investment structures.
3. IFSCA clarifies procedure and responsibilities of FMEs regarding KMP appointments
The International Financial Services Centres Authority (IFSCA) has clarified, in a circular issued on 20 February 2025, the procedure and responsibilities that fund management entities (FMEs) must follow to ensure compliance with the newly outlined regulations concerning Key Managerial Personnel (KMP) appointments.
Key points to note
- FMEs must ensure that the appointed KMPs are based out of GIFT IFSC and meet the eligibility criteria stipulated by IFSCA regarding educational qualifications and work experience
- FMEs are now required to notify IFSCA in a prescribed format when proposing to appoint or change a KMP. This intimation must be filed along with the payment of the applicable fee
- Once an FME files the intimation, IFSCA has committed to providing feedback within seven working days
- The circular sets clear guidelines for the prompt filling of vacant KMP positions. If a KMP position becomes vacant, the FME must identify a suitable replacement and file the intimation with IFSCA within three months of the vacancy. Furthermore, the position should not remain vacant for more than six months. This ensures there’s no prolonged disruption in leadership and decision-making within FMEs
4. IFSCA specifies timeline for registration of Regulated Entities on FIU-IND 2.0 portal
In a circular published on 25 February 2025, IFSCA has introduced a specific timeline for the registration of regulated entities on the Financial Intelligence Unit-India (FIU-IND) FINGate 2.0 portal for compliance with IFSCA (Anti Money Laundering, Counter-Terrorist Financing and Know Your Customer) Guidelines, 2022.
Key points to note
- Registration on the portal must be completed before the commencement of business
- If business operations need to begin urgently, the registration must be completed within 30 days of the commencement date
- Any addition or modification to a line of business must be updated on the portal within 30 days from the date of commencement of the additional/modified line of business
- In case of non-completion of registration on the portal, regulated entities are to complete all necessary filing under the Prevention of Money Laundering Act, 2002 with FIU-IND through email, stating the reason for not reporting through the portal
How can IQ-EQ help?
IQ-EQ India’s regulatory compliance and investor services team works closely with AIFs and FMEs in domestic India as well as GIFT IFSC to assist with regulatory compliance requirements including:
- Onboarding investors and carrying out due diligence and risk assessment in line with regulatory guidelines
- Preparing and filing applications for approval and doing periodical reporting with the regulator and stakeholders
- Registration of entities under various applicable statutes and in adherence with the relevant compliance requirements
- Issuing compliance alerts on new or updated applicable regulations in India
If you have any queries or would like to discuss any of these topics further, please contact us.
