On September 9, 2020, the Securities and Exchange Board of India (“SEBI”) issued circular no. SEBI/HO/IMD/DF1/CIR/P/2020/169 pertaining to ‘Operating Guidelines for Portfolio Managers in International Financial Services Centre’ (“Circular”).
The Circular noted that on March 27, 2015, SEBI issued the SEBI (International Financial Services Centre) Guidelines, 2015 (“IFSC Guidelines”). The IFSC Guidelines and related circulars issued by SEBI from time to time provide for a broad framework for operation of various intermediaries (including Portfolio Managers, as defined in the IFSC Guidelines) (“Portfolio Managers”). In terms of clause 3(1) of the IFSC Guidelines, SEBI can issue guidelines for any entity desirous of undertaking any other financial services relating to the securities market.
SEBI has, vide, the Circular, issued ‘Operating Guidelines for Portfolio Managers in International Financial Services Centre’(“IFSC”) (“Operating Guidelines”).
The Operating Guidelines, inter alia, state the following:
1. Applicability: Subject to the Operating Guidelines, all provisions of the SEBI (Portfolio Managers) Regulations, 2020 (“PMS Regulations”), and the guidelines and circulars issued thereunder (as amended from time to time), shall apply mutatis mutandis to Portfolio Managers setting up/ operating in IFSC. The provisions of IFSC Guidelines, and the relevant circulars shall also apply to Portfolio Managers setting up/operating in IFSC.
2. Registration of Portfolio Managers:
a) An application for grant of certificate of registration is required to be made in accordance with the provisions of chapter II of the PMS Regulations accompanied by a non-refundable application fee, i.e. as follows:
Appliation fee | USD 1,500 |
Registration fee for grant of certificate | USD 15,000 |
Registration fee every 3 (three) years from date of grant certificate | USD 7,500 |
b) An entity, being a company or a limited liability partnership (“LLP”) can act as a Portfolio Manager in IFSC (subject to meeting the prescribed net worth, as explained below), in the following forms:
i. Any SEBI registered intermediary (except trading member or clearing member) or its international associates in collaboration with such SEBI registered intermediary may provide portfolio management services in IFSC, by setting up a branch in IFSC, subject to the prior approval of SEBI. It is also required to ensure the following:
a. Exclusive manpower is allocated for providing portfolio management services from the branch of IFSC;
b.The branch complies with all the provisions (except obtaining registration) specified in the Operating Guidelines; and
c. The parent entity rings fence its domestic operations, legally, financially, operationally and technologically, from its operations at IFSC.
ii. Other entities (that are in the form of a corporate or a LLP or any other similar structure recognized under the laws of its parent jurisdiction), based in India or in a foreign jurisdiction, desirous of operating as a Portfolio Manager in IFSC, may form a company or LLP to provide portfolio management services. However, the formation of a separate company/LLP will not be applicable in case the applicant is already a company/LLP in IFSC.
c) The parent company is required to ensure that the branch complies with PMS Regulations, IFSC Guidelines, and circulars issued thereunder.
d) If SEBI is satisfied that the applicant fulfils the requirements as specified under the PMS Regulations read with the Operating Guidelines, it may grant its certificate/approval.
e) The Portfolio Manager in IFSC is required to obtain prior approval of SEBI where it proposes to change its status or constitution, for continuing to act as such after the change.
3. Operational Compliances:
a) Certification Requirement: The principal officer and employee having decision making authority related to fund management and who are resident outside India are required to mandatorily obtain certification from NISM in case they deal in Indian securities markets.
b) Net Worth Requirement (“NWR”): Applicants are required to have a net worth of not less than USD 750,000. The parent entity is required to meet the NWR in cases where the Portfolio Manager is set up as a branch. In cases the Portfolio Manager is set up as a subsidiary, the NWR is required to be met by the subsidiary. However, if the subsidiary does not meet the criteria, the net worth of the parent entity will be considered. The Portfolio Manager/parent entity is required to fulfil the NWR separately and independently for each activity undertaken by it under the relevant regulations.
c) Eligibility of the client to avail portfolio management services: The Portfolio Manager operating in IFSC is required to provide portfolio management services only to those persons that are referred in clause 9(3) of the IFSC Guidelines. The Portfolio Managers are required to comply with the applicable guidelines issued by the relevant overseas regulator/authority when they are dealing with persons resident outside India and non-resident Indians seeking portfolio management services from them.
d) Minimum Investment Amount: The Portfolio Manager operating in IFSC cannot accept funds or securities worth less than USD 70,000 from the client.
e) Segregation of funds: The Portfolio Manager operating in IFSC are required to keep the funds of all clients in a separate account maintained by them in the IFSC banking unit, as permitted by the Reserve Bank of India.
Please find a copy of the Circular here.
This update has been contributed by Adity Chaudhury (Partner) and Ishita Malhotra (Associate).
7A, 7th Floor, Tower C, Max House,
Okhla Industrial Area, Phase 3,
New Delhi – 110020
The rules of the Bar Council of India do not permit advocates to solicit work or advertise in any manner. This website has been created only for informational purposes and is not intended to constitute solicitation, invitation, advertisement or inducement of any sort whatsoever from us or any of our members to solicit any work in any manner. By clicking on 'Agree' below, you acknowledge and confirm the following:
a) there has been no solicitation, invitation, advertisement or inducement of any sort whatsoever from us or any of our members to solicit any work through this website;
b) you are desirous of obtaining further information about us on your own accord and for your use;
c) no information or material provided on this website is to be construed as a legal opinion and use of this website will not create any lawyer-client relationship;
d) while reasonable care has been taken in ensuring the accuracy of the contents of the website, Argus Partners shall not be responsible for the results of any actions taken on the basis of information provided in this website or for any error or omission in the website; and
e) in cases where the user has any legal issues, the user must seek independent legal advice.