Streamlining Compliance: SEBI’s Standardization of AIF PPM Audit Reports

Introduction

SEBI (Securities and Exchange Board of India), in its recent circular numbered SEBI Circular No. SEBI/HO/AFD/SEC-1/P/CIR/2024/22 is a letter dated April 18, 2024, is a circular for the standardization of the Private Placement Memorandum (PPM) Audit Report for Alternative Investment Funds (AIFs).[1] This update is expected to simplify the compliance processes and improve reporting consistency within different alternatives investment fund categories.

Explanation

Mandatory Annual Audit: Regulation 28 of SEBI (AIF) Regulations, 2012, requires AIFs to conduct a yearly audit of the violation of the terms of their Private Placement Memorandum (PPM). This offers a checking mechanism with respect to the funds management operations.

Standard Reporting Format: In order to achieve a uniform standard of compliance, SEBI (in the company of Standard Setting Forum for AIFs or SFA) has introduced a uniform PPM Audit report format. Such an approach will apply to all AIF types and is planned to be published on AIF Associations websites within 2 business days of the circular.

Assistance and Clarifications: The SFA AIF Associations will contribute to the AIF education process by helping AIFs to understand the reporting requirements and solve compliance problems. This undertaking will be focused on making AIFs’ reporting precise and timely through the provision of required assistance.

Online Submission: AIFs are supposed to give SEBI access to their PPM Audit Reports online through the SEBI Intermediary Portal (SI Portal) by using the defined format. Digital submission of the documents streamlines the process and makes regulatory compliance more efficient and easier to access.

Optional Audit Sections: While some parts of the PPM addressing risk factors, legal, regulatory, and tax aspects as well as track records of the new managers are in need of an audit, other parts such as illustration of fees and expenses and glossary and terms are not subject to audit.

Applicability and Review: The reporting requirements given in the circular have to be included in the PPM audit reports from the financial year ending March 31, 2024, onwards. In addition, the standardized reporting format will be reviewed periodically by the pilot SFA with SEBI to keep pace with the changing environment of the Alternative Investment Fund (AIF) industry.

Conclusion

The SEBI circular on the standardization of the PPM Audit Report for the AIFs, however, is one such step that aims at improving transparency, efficiency, and uniformity in compliance regulations within the AIF industry. The introduction of a uniform reporting format, the ease of online submission, and the subsequent streamlining of compliance procedures by SEBI are aimed at bringing order to the procedures and instilling investor confidence. The SEBI-supported partnership between SEBI and industry stakeholders highlights the goal of developing and regulating the securities market in India. AIFs are expected to apply this circular guidelines and the AIF Associations support to make sure their compliance with the regulatory requirements is smooth.

[1] https://www.sebi.gov.in/legal/circulars/apr-2024/standardization-of-the-private-placement-memorandum-ppm-audit-report_82938.html