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Sebi tweaks rules for accredited investors, independent directors and whistleblowers: Key takeaways

The regulatory amendments issued by Sebi also cover asset management companies, audit committees, real estate investment trusts (REITs) and infrastructure investment trusts (InvITs).

June 29, 2021 / 10:27 PM IST
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The Securities and Exchange Board of India (SEBI) on June 29 approved amendments to key regulations pertaining to accredited investors, independent directors and reward for whistleblowers.

The amendments issued by Sebi also covers asset management companies, audit committees, real estate investment trusts (REITs) and infrastructure investment trusts (InvITs), among others.

Here are the key takeaways from the decisions taken by the market regulator at its Board meeting.

Amendments related to Independent Directors

As per the amendments made to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations), all "appointment/re-appointment and removal of independent directors (IDs) shall be through a special resolution of shareholders for all listed entities".

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The composition of the Nomination and Remuneration Committee (NRC), which selects the candidates to be appointed as independent directors, has been modified to include two-third IDs instead of the existing requirement of majority of IDs.

SEBI also noted that "at least two-third of the members" of the audit committee shall be independent directors and all related party transactions "shall be approved by only Independent Directors on the audit committee".

Framework for accredited investors

The Board has approved the proposal to introduce a framework for ‘Accredited Investors’, who have been defined as "a class of investors who may be considered to be well informed or well advised about investment products."

As per the framework, those eligible to be included as accredited investors could be individuals, HUFs, family trusts, sole proprietorships, partnership firms, trusts and body corporates based on financial parameters and information as may be specified by Sebi.

The framework also provides for recognition of eligible subsidiaries of depositories and specified stock exchanges, and any other specified institutions as "Accreditation Agencies".

The Accreditation Agencies would grant accreditation status and issue Accreditation Certificate to investors.

The move by Sebi would provide benefits to accredited investors, who "shall have flexibility to participate in investment products with an investment amount lesser than the minimum amount mandated in the Alternative Investment Funds (AIF) Regulations and Portfolio Managers (PMS) Regulations."

AIF for accredited investors where each investor invests a minimum investment amount of Rs 70 crore may avail relaxation from regulatory requirements such as portfolio diversification norms, conditions for the launch of schemes and extension of tenure of the AIF.

Accredited investors with a minimum investment of Rs 10 crore with registered PMS provider, may avail relaxation from the regulatory requirement with respect to investment in unlisted securities and can enter into bilaterally negotiated agreements with the PMS provider.

REITs and InvITs related amendments

In relation to InvIT, the Board approved the amendments to SEBI (Infrastructure Investment Trusts) Regulations, 2014, for "introduction of minimum unit holders requirement for unlisted InvITs".

The minimum number of unitholders, other than the sponsor, its related parties and its associates, shall be five together holding not less than 25 percent of the total unit capital of the InvIT, Sebi said.

The Board also approved the amendments to SEBI (Real Estate Investment Trusts) Regulations, 2014 and SEBI (Infrastructure Investment Trusts) Regulations, 2014, for revision in minimum subscription and trading lot

for publicly issued REITs and InvITs. "The revised minimum application value shall be within the range of Rs 10,000-15,000 and the revised trading lot shall be of one unit," it said.

Industry players have lauded SEBI’s decision bring changes in minimum application value. "The earlier Rs 50,000 cap restricted participation to only a certain set of investors. We believe that this amendment makes investment in REITs at par with other equity options in India. Reduction in minimum application amount will further bring in more investors thus improving the liquidity in REITs," said Vinod Rohira, CEO, Mindspace Business Parks REIT.

On Asset Management Companies

Asset management companies would have to invest a higher proportion of their own funds in riskier schemes.

The Board approved amendment to SEBI (Mutual Funds) Regulations, 1996, to provide for "investment of a minimum amount as skin in the game in the Mutual Fund (MF) schemes by Asset Management Companies (AMCs) based on the risk associated with the scheme", instead of the current requirement of one percent of the amount raised in New Fund Offer or an amount of Rs 50 lakh, whichever is less, stated the press release issued by the market regulator.

Reward for whistleblowers

The regulatory body has approved amendments to the SEBI (Prohibition of Insider Trading) Regulations, 2015, to increase the amount of reward for whistleblowers.

The maximum reward amount has been raised to Rs 10 crore, from Rs 1 crore at present.

If the total reward payable to the informant is less than or equal to Rs 1 crore, then the reward may be granted by Sebi, after the final order is issued, it said.

In case of the reward amount exceeding Rs 1 crore, the amount above Rs 1 crore would be paid "only upon receipt of the monetary sanctions amounting to at least twice the balance of the reward amount payable by Sebi," the press release noted.

 



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