Sebi Proposes Uniform Investor Consent Rules, Wider Conflict Checks for AIFs

New Delhi, June 30: Markets regulator Sebi on Tuesday proposed to standardise the process for obtaining investor consent in Alternative Investment Funds (AIFs) and widen the scope of conflict-related transactions requiring investor approval.

The proposals are aimed at “striking a balance between operational and investment flexibility for AIFs, while ensuring that investors are able to make informed decisions”, Sebi said.

In its consultation paper, Sebi has proposed a uniform approval threshold of 75 per cent of investors by value for all matters requiring investor consent, replacing the existing framework where different thresholds of two-thirds and 75 per cent apply to different activities.

The regulator has also proposed allowing AIFs to choose one of three standardised voting methodologies for obtaining investor consent — deemed consent, present and voting, or express voting — subject to clear disclosure in the fund’s placement memorandum and consistent application across all investors in a scheme.

Sebi said the proposals aim to balance operational flexibility for AIFs with investor protection by ensuring investors can make informed decisions while providing managers with a clear and implementable framework.

The consultation paper noted that varied market practices have emerged regarding voting methodologies, treatment of non-responses and approval thresholds, leading to operational challenges and interpretational uncertainty.

To improve transparency, Sebi has proposed that all investors should be given an opportunity to vote on proposals requiring consent.

Managers would also be required to disclose the rationale for proposals, applicable regulatory provisions, approval thresholds and the treatment of non-responses under the chosen voting methodology.

The regulator has further proposed that AIF managers maintain records of all communications, notices, reminders and voting processes, while responding to investor queries within a reasonable timeframe.

For existing AIF schemes, Sebi has proposed grandfathering the consent methodologies already adopted, with the new framework applying prospectively.

Also, Sebi has proposed expanding the scope of conflicted transactions requiring investor approval by introducing the concept of “related party” based on the definition under the Companies Act, 2013, with suitable modifications for the AIF framework.

The regulator observed that the current definition of “associate” is narrow and may allow certain inherently conflicted transactions to escape investor approval requirements.

Accordingly, Sebi has proposed that transactions involving related parties of an AIF’s manager or sponsor should require investor consent, while excluding related parties of trustees or the AIF itself, recognising their limited role in day-to-day fund management.

The regulator said the proposals are intended to strengthen transparency and conflict management without disrupting the routine operations of AIFs.

The Securities and Exchange Board of India (Sebi) has invited public comments till July 21 on the proposals.