AIFs slammed for circumvention of regulations

AIFs slammed for circumvention of regulations

The use of alternative investment funds (AIFs) for circuitous routing of funds into stressed entities or to circumvent norms around funding raises questions on whether regulations should be eased, Ananth Narayan, whole time member of Sebi, said on Thursday.

Speaking at a conference organised by the Confederation of Indian Industry, he said AIFs are structured to circumvent. Though he declined to disclose any figure, Narayan said while there were no breaches as regards the “letter of the law”, certain entities were found acting in a manner that breaches the “spirit of the law”. Some entities also use the route to fund stressed entities, which use funds to repay earlier loans, he pointed out.

He clarified that these are not cases that will go into enforcement, but will be probed to see how the regulations can be streamlined — and that Sebi is in constant communication with other regulators like the RBI.

Emphasising that AIF regulations “need to be light-touch”, he asked industry players to get together and devise an industry standard forum with the objective of representing their suggestions. He assured the industry of ease of doing business if they adhere to the set standards.

Narayan acknowledged the contribution of the AIF industry towards capital formation, saying that it has seen a 40% CAGR in terms of both commitment and investments. At present, there are investments to the tune of Rs 3.5 trillion, and a further `8.5 trillion in commitments.

Narayan emphasised that the ultimate aim of the regulator was to stop both Type 1 errors, which is “to allow bad things to happen”, and Type 2 errors, which is “to stop good things from happening”.