Teams will study the existing Financial Sector Regulations of various Regulators in India i.e SEBI, RBI, IRDA, PFRDA, FMC etc, (all or any of them) as well as compare them with regulations by global regulators viz SEC, Regulatory Authorities in UK, Singapore etc.

1. B : Topaz

2. Team Members
• Anand Desai
• Vidur Mehta
• Mehul Dholaria

3. FSR- Indian Financial
Code
BFSICM Study Group Meeting:
Competition cum Think Tank on the Financial Sector Reforms
18th January 2014- ICAI Towers, Mumbai
Presented by CA Anand Desai

4. Introduction
• The Indian Financial Code
• “Formulated” by the Financial Sector Legislative Reforms
Commission
• Presented to the Ministry of Finance in March 2013
• Comprises of 450 Sections

5. Need for the Code
• The current financial structure of Indian Financial Sector is
fragmented & Incomplete
• The financial crisis of 2008 have necessitated to have :
1. Close and effective regulation of Market ,
2. emphasis on Systematic risk,
3. An effective resolution framework.
• Several Overlaps between laws & agencies and Reguatory
gaps leading to a “Regulatory Arbitrage”
• Eg: Extended litigation on Sahara group by SEBI,

6. Significance
• Brings about necessary transformation in the Legal and
Institutional structures of the Financial Sector.
• Endeavors to reduce the gap between the requirement of the
country and the present legal and regulatory arrangement.
• Unification of plethora of many laws into a Single Draft Code
for better Regulation and equip the Indian Financial Sector for
the Future.

7. Purpose of the FrameworkComponents
1.
2.
3.
4.
5.
6.
7.
8.
9.
Consumer Protection
Micro-prudential Regulation
Resolution
Capital Controls
Systematic Risk
Development and Redistribution
Monetary Policy
Public Debt Management and,
Contract, trading and Market Abuse
 Non-Sectoral Principle based laws

8. TRANSITION

9. Transition- Steps
• Project Team to be formed within Ministry of
Finance
• Recommended by “The Commission”
• Facilitate the transition process
• To have adequate staff & Resources

10. Project Team
To Steer the draft & Facilitate the
information flow & co-od. With the
agencies
Blueprint for the Transition
Functions
Determine manner of:
Identify the steps for the ease of
Transition –Regulated agencies such as :
1. Phasing out of Existing regulation, &
a. One time CG tax exemption;
2. Timing of the Draft coming into effect
b. Exemption
registration.
from
Stamp
duty

11. Suggestions by the
Commission
Withdrawal of Bills that are Not Aligned
with the Code & having Material Deviation
Introduction of some Elements into
existing practice
Creation of New Agencies

12. Alternative
Investments FundsRegulatory
Perspective
Presented by CA Vidur Mehta

13. Alternative Investments
• The term “Alternative Investments” is a relatively
loose term and includes tangible assets such as
precious metals, art, wine, coins or stamps and
complex financial assets such as commodities,
private equity, venture capital, distressed securities,
hedge funds, infrastructure and carbon credits.
• Investments in Real Estate are also generally
included here despite ancient use of such real
assets being used to enhance and preserve wealth.
• The traditional asset classes of stocks and bonds are
specifically excluded.

14. Characteristics of the Alternative Investments
• Tool to reduce overall Investment risk through
diversification.
• Low correlation with traditional financial
Investments such as stocks and bonds.
• Relatively Illiquid and difficult to determine the
current market value of the asset.
• Limited Historical Risk and Return Data.
• High Degree of Investment Analysis is required
before buying.
• Ideal for HNIs and Institutional Investors.

15. Why the need for Alternative
Investments?
• Traditionally the entrepreneurs were dependent
on private placements, IPOs and lending from
Financial Institutions
• 6,000 listed companies – about 73% of BSE listed
stocks – with less than ₹ 100 crores of market
capitalisation and which contribute less than 2%
of daily trading volumes.

16. Need for AIF Regulations
• Incentivize PE Funds and VC funds to promote
SMEs through Investments in prioritized sectors
in a regulated manner.
• Providing a level playing between registered and
unregistered VCFs.
• Need to classify AIF as a distinct asset class.
• Tie Concessions and Incentives to Investment
restrictions.
• Reduce Systemic Risks that AIF may pose to
stability of financial markets.

17. Introduction to SEBI (Alternative Investment
Funds Regulations, 2012
• The Regulations came into force w.e.f. 21st May,
2012.
• The Regulations seeks to regulate fundraising
activity and fund management activity in India.
• The Regulation consists of 39 regulations spread
over 7 Chapters.
• An AIF is a privately pooled investment vehicle
which collects funds from foreign or Indian investors
for investing as per defined investment policy.
• Can be incorporated as trust, Company, LLP or body
corporate.

18. Forms of AIF
Private Equity
Fund
Debt Fund
SME Fund
Infrastructure
Fund
Social
Venture Fund
Hedge Fund
Venture
Capital Fund

19. Registration of an AIF
Category I
Category II
Category III
• Invests in start-ups or
social ventures or
SMEs
or
Infrastructure
• Includes VC Funds,
Social Venture Funds,
SME
and
Infrastructure Funds
• Closed Ended Fund
with
Minimum
Tenure of 3 Years
• Prohibited to take
any leverage except
for
day-to-day
operations
• Includes mostly PE
Funds and Debt
Funds
• Closed Ended Fund
With
Minimum
Tenure of 3 Years
• Employs
Diverse/
Complex Strategies
and may employ
leverage (incl. Invt.
In Listed & Unlisted
Derivatives)
• Includes generally
Hedge Funds
• Open Ended or
Closed Ended Fund

20. General Requirements to be complied by
an AIF
• Minimum corpus of the Fund should be ₹ 20
Crores.
• Minimum coupon size for the investor is ₹ 1 Crore.
• Manager continuing’s interest should be 2.5% (5%
for Cat. III) of the fund or ₹ 5 Crores whichever is
higher.
• Max. no of Investors to be 1000.
• Investments in securities of companies incorporated
outside India is permitted.
• Cap on investment in single company is 25% (10%)
of investible funds for Cat. I & II (III).

21. Recommendations
• Deregulation of Design in which Products are
structured.
• Sec. 10(23FB) of the Income Tax to be
amended to provide complete pass-through.
• Need to remove restrictions on IRDA and
PFRDA to invest in PE and VC Funds.
• A separate category of Debt Funds to be
removed so PE Funds can use debt as a
medium for investment.