BackRegulator proposes to introduce concept of ‘accredited investors’
The new flexible regulatory framework is expected to result in customized investment products, reduced compliance, better risk labelling (product classification) and increased transparencySebi is open for comments from the public on the proposed framework till 18 March
PremiumWith an aim to provide a relaxed regulatory framework for sophisticated investors and introduce products designed to meet investor-specific risk profile, the Securities and Exchange Board of India (Sebi) has released a consultation paper on the introduction of the concept of “accredited investors" in the Indian securities market. The paper can be seen as the beginning of a regulatory regime that enables regulatory supervision or intensity based on the sophistication of an investor.
“The concept of a class of investors who have an understanding of various financial products and the risks and returns associated with them, and therefore, are able to make informed decisions regarding their investments, is recognized by many securities and financial market regulators worldwide. These investors are typically termed accredited investors, qualified investors or professional investors," Sebi said on Wednesday.
Sebi regulates a number of investment products such as schemes of mutual funds, real estate investment trusts, infrastructure investment trusts and portfolio management services (PMSes), among others. However, according to experts, there is over-stipulation by Sebi as it wants to simplify each product to a level where it is usable and understandable by every investor.
The new flexible regulatory framework is expected to result in customized investment products, reduced compliance, better risk labelling (product classification) and increased transparency.
“This is Sebi’s minimum governance moment for sophisticated investors. This framework can be used for boosting innovation as more regulation tends to inhibit innovation. This will create a separation of regulations in terms of where you want to tightly regulate, which is for retail investors, and where you want to allow a little bit more flexibility, which leads to innovation when you are dealing with accredited investors. We don’t need to specify anything and everything that gets sold to them," said Atul Singh, chief executive officer, Validus Wealth Managers Pvt. Ltd.
As one of the eligibility criteria, Sebi has proposed to keep ₹2 crore as minimum annual income for Indian individual accredited investors, which include individuals, Hindu Undivided Families and family trusts. Accreditation once granted will be valid for a maximum period of one year.
As an illustration, Sebi in the consultation paper said that under the new framework, minimum capital requirements for PMSes and alternative investment funds (AIFs) could be below ₹50 lakh and ₹1 crore, respectively, which are as per current regulations.
Sebi is open for comments from the public on the proposed framework till 18 March.
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