INSITE - India - April 2024

STANDARDIZATION OF PRIVATE PLACEMENT MEMORANDUM (PPM) AUDIT REPORT

Summary: The Security and Exchange Board of India (SEBI) recently issued a circular (SEBI/HO/AFD/SEC-1/P/CIR/2024/22) on April 18, 2024, about standardizing Private Placement Memorandum (PPM) Audit Reports for Alternative Investment Funds (AIFs). This circular aims to simplify compliance procedures and improve reporting efficiency for AIFs.

In Detail:

• Regulatory Framework: SEBI requires annual audits of compliance with PPM terms for AIFs under Regulation 28 of SEBI (AIF) Regulations, 2012 and Clause 2.4 of the SEBI Master Circular dated July 31, 2023. These audits are essential to ensure transparency and investor protection in the AIF sector.
  

• Standard Reporting Format: SEBI, in collaboration with the Standard Setting Forum for AIFs (SFA), has developed a standardized reporting format for PPM Audit Reports to establish consistency in compliance standards across various categories of AIFs, simplifying reporting procedures.
  

• Website Hosting and Assistance: The standardized reporting format will be available on AIF association websites affiliated with the SFA which will provide guidance and assistance to AIFs in meeting reporting requirements and resolving related issues promptly.
  

• Online Submission: AIFs must submit their PPM Audit Reports to SEBI online through the SEBI Intermediary Portal (SI Portal) using the prescribed format, enhancing efficiency and ensuring regulatory compliance.
  

• Optional Audit Sections: While certain sections of the PPM are mandatory for audit, such as 'Risk Factors' and 'Legal, Regulatory, and Tax Considerations,' others like 'Illustration of Fees and Expenses' and 'Glossary and Terms' are optional, offering flexibility to AIFs based on their needs.
  

• Continual Review: SEBI and the pilot SFA will periodically review the reporting format to align with changing regulatory requirements, promptly communicating any revisions and making them available on affiliated association websites.

Conclusion: SEBI's circular on standardizing PPM Audit Reports demonstrates a proactive approach to enhancing transparency and regulatory compliance in the AIF sector. By introducing a standardized reporting format and facilitating online submissions, SEBI aims to boost investor confidence and support the sustainable growth of the securities market, emphasizing the importance of collaboration between regulatory authorities and industry stakeholders.

Key Links: SEBI | Standardization of the Private Placement Memorandum (PPM) Audit Report 

ENTITIES ALLOWED TO USE E-KYC AADHAAR AUTHENTICATION SERVICES OF UIDAI IN SECURITIES MARKET AS SUB-KUA

Summary: SEBI's recent circular authorizes certain organizations to use Aadhaar e-KYC services in the securities market, particularly for Resident Investors. Sub-KUAs play a key role in this process, with 24 entities identified in a Ministry of Finance notification permitted to conduct Aadhaar e-KYC authentication. These entities must follow SEBI's guidelines and directives from UIDAI, with KYC User Agencies assisting them in becoming sub-KUAs.

In Detail: SEBI has issued a recent circular that outlines the organizations authorised to use Aadhaar e-KYC authentication services in the securities market. The circular's impact and lists the entities approved for this purpose. This circular,

SEBI/HO/MIRSD/SECFATF/P/CIR/2024/21, emphasizes the use of Aadhaar-based e-KYC processes and authentication facilities for Resident Investors in the securities market. Entities known as sub-KUAs (KYC User Agencies) play a crucial role in this process. The Ministry of Finance's Gazette Notification S.O. 801(E) dated February 20, 2024, identifies 24 entities permitted to use Aadhaar authentication services under Section 11A of the Prevention of Money-laundering Act, 2002. These entities have the authority to conduct Aadhaar e-KYC authentication services. The circular requires these entities to follow the processes outlined in SEBI's previous circular dated October 12, 2023, and any directives issued by UIDAI. Additionally, Know Your Customer (KYC) User Agencies (KUAs) are responsible for assisting these entities in becoming sub-KUAs.

Conclusion: SEBI's circular underscores the importance of Aadhaar-based e-KYC processes and authentication facilities for Resident Investors in the securities market. The designation of entities as sub-KUAs plays a crucial role in this framework, as outlined by the Ministry of Finance's Gazette Notification. By adhering to SEBI's guidelines and directives issued by UIDAI, these entities are empowered to conduct Aadhaar e-KYC authentication services, contributing to enhanced security and efficiency in the securities market.

Key Links: SEBI | Entities allowed to use e-KYC Aadhaar Authentication services of UIDAI in Securities Market as sub-KUA