Dentons US LLP
07/07/2024 | News release | Distributed by Public on 07/08/2024 11:29
Corporate Legal Development Newsletter - May 2024
July 7, 2024
This May newsletter covers categories of relevant updates notified by the Ministry of Corporate Affairs ("MCA"), the Indian securities market regulator (i.e., the Securities and Exchange Board of India ("SEBI")) and India's central bank and regulatory body responsible for regulation of the Indian banking system (i.e., the Reserve Bank of India ("RBI"). The notification of the MCA extends time for statutory reporting on beneficial ownership in an LLP with the MCA, the RBI allows regularization of the issuance of partly paid units by Alternative Investment Funds ("AIFs") to non-residents, through compounding and have also published the framework for Self-Regulatory Organisation(s) in the FinTech Sector including introduction by SEBI a framework for unaffected price determination in response to market rumours and industry standards on verification of market rumours and decision of SEBI to promote investor awareness through audiovisual presentations of public issue are one of the important updates covered in this newsletter.
MCA
1. Relaxation of additional fees and last date of filing Form LLP Ben-2 and LLP Form No.4D
May 7th, 2024 - The MCA vide its circular dated May 7th, 2024, has extended the timeline for filing of Form LLP BEN-2 (in respect of declaration under Section 90 of Companies Act, 2013) under Limited Liability Partnership (Significant Beneficial Owners) Rules, 2023 and E-Form LLP Form no. 4D (in respect of declaration of beneficial interest in contribution received by the LLP) prescribed under Limited Liability Partnership (Third Amendment) Rules, 2023 till 01 July 2024 without payment of any further additional fees.
The extension has been granted considering the transition of MCA-21 from version-2 to version-3 and to promote compliance on part of reporting limited liability partnerships.
RBI
1. RBI mandates compounding for issuance of partly paid units to persons resident outside India by AIFs, prior to March 14, 2024
May 21, 2024: The Foreign Exchange Management (Non-debt Instruments) Rules, 2019, was amended through the Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2024 vide S.O. 1361(E), dated March 14, 2024, which enabled issuance of partly paid units to persons resident outside India by investment vehicles.
The RBI vide a circular (RBI/2024-25/36) issued to all the Authorised Dealer Category - I banks, decided to regularise the issuance of partly paid units by AIFs to non-residents, prior to the Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2024, through compounding under the Foreign Exchange Management Act, 1999. Before seeking compounding from RBI, AD Category-I banks must ensure that AIFs have completed the necessary administrative steps, including reporting these issuances through the Foreign Investment Reporting and Management System (FIRMS) Portal and obtaining conditional acknowledgements for such reports.
2. RBI issued a press release on the PRAVAAH, RBI Retail Direct Mobile Application, and FinTech Repository
May 28, 2024: The RBI issued a press release dated 2024-2025/393 on the launch of 3(three) initiatives "(i) PRAVAAH, (ii) RBI Retail Direct Mobile Application; and (iii) FinTech Repository. These three initiatives were earlier announced as part of RBI's bi-monthly Statement on Development and Regulatory Policies in April 2023, December 2023 and April 2024 respectively.
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'PRAVAAH' (Platform for Regulatory Application, Validation and Authorisation) portal
The PRAVAAH portal aims to simplify the application process for regulatory approvals, improve communication between applicants (both individuals and regulated entities) and RBI, and expedite decision-making, ultimately benefiting the applicants for making applications and seeking validation and authorization from RBI. The portal can be accessed here.
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Mobile Application for RBI Retail Direct portal
The Retail Direct Mobile Application launched by RBI empowers retail investors by offering a user-friendly platform to invest in government securities, facilitating transactions, and providing a seamless experience for managing such investments.
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FinTech Repository
The FinTech Repository, introduced by RBI, holds significant importance in contributing to the fintech ecosystem in India by providing a platform for capturing essential information about FinTech entities, their activities, and technology usage. FinTechs, both regulated and unregulated, are encouraged to contribute to the Repository, which is accessible here.
Simultaneously, the EmTech Repository has also been launched for only RBI regulated entities on their adoption of emerging technologies (like AI, ML, Cloud Computing, DLT, and Quantum technologies), which can be accessed here.
The FinTech and EmTech Repositories are secure web-based applications and are managed by the Reserve Bank Innovation Hub (RBIH), a wholly owned subsidiary of RBI. The repository would enable availability of aggregate sectoral level data, trends, analytics, etc., that would be useful for both policymakers and participating industry members. RBI encourages the FinTechs and Regulated Entities to actively contribute to the said repositories.
3. RBI published the Framework for Self-Regulatory Organisation(s) in the FinTech Sector:
May 30, 2024: RBI vide its press release dated 2023-2024/1677 released a "Draft framework for recognising Self- Regulatory (SRO) for Fintech Sector", inviting comments and feedback from the stakeholders.
Based on the inputs received from the stakeholders and examination thereof, RBI, on May 30, 2024, published the "Framework for Self-Regulatory Organisation(s) in the FinTech Sector" ("Framework").
Self-regulation necessitates a well-defined structure based on consensus and co-operation amongst the entities. The Framework presents itself in the form of a Self-Regulatory Organisation ("SRO") for the FinTech Sector. SRO essentially is an industry-led entity responsible for establishing and enforcing regulatory standards, promoting ethical conduct, ensuring market integrity, resolving disputes, and fostering transparency and accountability among its members. The Framework contains the characteristics of an SRO for the FinTech sector ("SRO-FT"), and includes, inter-alia, broad functions, governance standards, eligibility criteria and expectations for grant of recognition as an SRO-FT.
The Framework describes the following, in relation to SRO-FTs: (a) its characteristics and operations; (b) eligibility and membership criteria; (c) functions and responsibilities; and (d) governance and management.
In light of the Framework, RBI intends to initiate the process of recognising SRO(s). Entities that meet or intend to meet the eligibility criteria and requirements can apply by submitting an application form along with the necessary documents. The names of applicants found eligible for recognition will be published on the RBI's website.
The Framework can be accessed here.
SEBI
1. Framework for Administration and Supervision of Research Analysts ("Ras") and Investment Advisers ("IAs") by Stock Exchanges ("SE") as Research Analyst Administration and Supervisory Bod ("RAASB") and Investment Adviser Administration and Supervisory Body ("IAASB")
May 2, 2024: SEBI has outlined an exhaustive framework for administration and supervision of RAs and IAs through this circular ("Circular 1"), which aims to streamline processes, enhance investors' protection and promote market development. Previously, the RAASB and IAASB were governed through SEBI circular no. SEBI/HO/IMD/IMD-I/DOF1/P/CIR/2021/579 dated June 18, 2021 ("Old Circular") and subsequently incorporated under the head of 'Administration and Supervision of Investment Advisers' of Master Circular for Investment Advisers numbered SEBI/HO/MIRSD-PoD-2/P/CIR/2023/89 dated June 15, 2023 ("Old Master Circular"). From the effective date of this Circular 1, the Old Circular and the Old Master Circular are rescinded.
The framework, amongst others, (i) outlines the criteria for the grant of recognition of SE as RAASB and IAASB; (ii) addresses the establishment of requisites by SE recognized as RAASB/IAASB; (iii) lays down the Responsibilities of SEBI and RAASB/IAASB; (iii) specifies that requirement of enlisting RAs/IAs with RAASB/IAASB; (iv) lays down reporting requirements. The provisions of the Circular 1 shall be effective from July 25, 2024.
2. Enhancing oversight of distributors for portfolio management service ("PMS") through Association of Portfolio Managers in India ("APMI").
May 2, 2024: To focus on enhancing oversight of distributors for PMS through APMI, a working group was constituted to review the present regulatory framework and recommend measures to promote ease of doing business. Pursuant to the recommendations of the working group, it has been decided that any person or entity involved in the distribution of PMS shall obtain registration with APMI and the Portfolio managers shall ensure that the registration has been obtained, in accordance with the criteria laid down by APMI.
This circular shall come into effect from January 01, 2025. APMI shall issue the criteria for registration of distributors by July 01, 2024.
Link Here.
3. Promoting transparency for portfolio managers ("PMs") and digital on-boarding of clients
May 2, 2024: With a view to simplify compliance, a working group was constituted to review the present regulatory framework and recommend measures to promote ease of doing business for PMs and the APMI. This circular was issued based on a public consultation carried out at the recommendation of the working group, which aims to (i) facilitate the digital onboarding of clients by portfolio managers and enhance fee transparency through additional disclosures.
The specific changes include modifications to agreements, fee structures, client understanding acknowledgments, fee calculation tools, additional fee disclosures, periodic reports, and most important terms and conditions (MITC) documents. The circular emphasizes that these changes will come into effect from October 1, 2024, with standard procedures and formats to be issued by APMI by July 31, 2024.
4. Introduction of standardized periodic reporting format for investment advisers ("IAs")
May 7, 2024: SEBI has recognized IAASB for administration and supervision of IA. At present, the IAASB has been seeking reports from IAs on an ad-hoc basis, it has now decided to specify a standardized format for periodic reporting for IAs.
IAs are now required to submit periodic report for half-yearly periods ending on September 30 and March 31 of every financial year. Further, IAASB is directed to make necessary arrangements for obtaining periodic reports from IAs in the format specified and shall issue a circular to IAs in this regard, within thirty days from the date of issuance of this circular.
Additionally, IAs shall submit periodic reports from the half yearly period ending on March 31, 2024. IAs shall submit the periodic report for the half-yearly period ending on March 31, 2024 to IAASB within a period of fifteen days from the date of issuance of circular by IAASB. For the subsequent half-yearly periods, IAs shall submit periodic reports within seven working days from the end of the half-yearly period for which details are to be furnished. This circular shall become applicable with immediate effect.
5. Mandatory certification requirement for key investment team of alternate investment fund ("AIF") Managers
May 13, 2024: In terms of Regulation 4(g)(i) of SEBI (Alternative Investment Funds) Regulations, 2012 (AIF Regulations), the key investment team of the manager of an AIF is now required to have at least one key personnel with relevant certification as may be specified by SEBI from time to time, as an eligibility criterion for obtaining certification of registration as an AIF. The said regulation came into force on May 10, 2024, and applies to all AIF registration applications and scheme launches filed after this date. The existing AIF schemes and pending scheme applications with SEBI as on May 10, 2024 must comply with the certification requirement by May 9, 2025.
The trustee/sponsor of AIF, as the case may be, shall ensure that the 'Compliance Test Report' prepared by the manager in terms of para 15.2 of SEBI Master Circular No. SEBI/HO/AFD-1/AFD-1-PoD/P/CIR/2024/39 dated May 07, 2024, includes compliance with the provisions of this circular. The provisions of this circular shall come into force with immediate effect.
6. Introduction of framework for unaffected price determination in response to market rumours and industry standards on verification of market rumours
May 21, 2024: In terms of Regulation 30(11) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("SEBI LODR Regulations") as amended, a listed entity is required to verify market rumours, upon material price movement. The stock exchanges shall issue the framework for material price movement on their websites.
As per second proviso to Regulation 30(11) of SEBI LODR Regulations, unaffected price shall be considered for transactions on which pricing norms specified by SEBI or the stock exchanges are applicable, provided that the rumour pertaining to such transaction has been confirmed within 24 hours from the trigger of material price movement. Further, it has been specified that the unaffected price shall be considered by excluding the effect on the price of the equity shares of the listed entity due to the material price movement and confirmation of the rumour. It also addresses scenarios where subsequent rumours require further confirmation and outlines the responsibilities of stock exchanges and listed entities in compliance with the framework. The framework and the same shall be applicable to top 100 listed entities with effect from June 1, 2024 and to top 250 listed entities (i.e., next top 150) with effect from December 1, 2024.
May 21, 2024: In order to facilitate ease of doing business and effective implementation of the requirement to verify market rumours as per SEBI LODR Regulations, the Industry Standards Forum (ISF) comprising of representatives from three industry associations, viz. ASSOCHAM, CII and FICCI, under the aegis of the Stock Exchanges, on a pilot basis, has formulated industry standards, in consultation with SEBI. The listed entities shall follow the aforesaid industry standards to ensure compliance with Regulation 30(11) of SEBI LODR Regulations.
The requirement to verify market rumours under SEBI LODR Regulations shall be applicable to top 100 listed entities with effect from June 1, 2024 and to top 250 listed entities (i.e., next top 150) with effect from December 1, 2024 as specified by SEBI circular dated January 25, 2024.
7. Promoting investor awareness through audiovisual presentations of public issue
May 24, 2024: In order to create awareness among investors to not rely on unauthorized/unsolicited information about public issues, SEBI has decided that salient disclosures made in the Draft Red Herring Prospectus ("DRHP"), Red Herring Prospects ("RHP") and Price Band Advertisement for public issues shall also be made available in Audio Visual format ("AV") for ease in understanding the features of public issues.
The AV presentations will cover material disclosures about the company, risk factors, capital structure, objects of the offer, business of the issuer, promoters, management, summary of financial information, and litigations from the DRHP, RHP and Price Band Advertisement for public issues. The content of the AV must be factual, non-repetitive, non-promotional, and not misleading. The AV has to be in compliance with the provisions prescribed under Schedule IX of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. The AV presentations will be uploaded on the issuer's website, and the weblink of AV shall be made available on the websites of the lead manager, and the stock exchanges. The responsibility for the content and information in the AV lies with the issuer and all lead managers to the public issue.
The circular specifies the applicability of these guidelines from July 1, 2024, voluntarily for DRHP filings, and mandatorily for all DRHP filings from October 1, 2024.
8. Norms for sharing real-time price data with third parties to prevent misuse
May 24, 2024: SEBI has observed that certain online gaming platforms, apps, websites, etc. (hereafter referred to as "Platforms") are providing virtual trading services or fantasy games which are based on movement of real time share prices (price data) of listed companies. Some platforms are even offering monetary incentives based on the performance of the virtual stock portfolio. Therefore, based on the recommendations of Secondary Market Advisory Committee of SEBI ("SMAC") and to curb misuse or unauthorized use of such data, it has been decided that sharing of real time price data with third parties shall be, inter alia, subject to the following:
1. Stock exchanges, clearing corporations and depositories (collectively referred as "Market Infrastructure Institutions" or "MIIs") and registered market intermediaries must not share real-time price data with any third party unless necessary for market order or regulatory compliance.
2. MIIs or market intermediaries must have agreements with entities for sharing real-time price data, detailing the justified use for market order. These agreements and entities must be reviewed annually by the Boards of MIIs
3. Market price data can be shared for investor education and awareness with a 1-day lag, without monetary incentives.
4. MIIs and intermediaries must conduct due diligence and include provisions in agreements to prevent misuse of data.
5. MIIs and intermediaries must make best efforts to prevent misuse of price data by entities with whom they share it.
This Circular is effective from the 30th day of issuance of the Circular, i.e., from June 23, 2024.
9. Timelines for disclosure by Social Enterprises on the Social Stock Exchange for the FY 2023-24
May 27, 2024: SEBI vide a circular dated May 27, 2024 has issued timelines for disclosures by Social Enterprises on the Social Stock Exchange ("SSE") for FY 2023-24. Accordingly, in terms of Regulation 91C(1) of the SEBI LODR Regulations, Not-for-Profit Organizations ("NPOs") registered on the SSE, including those with listed designated securities, must make annual disclosures to the SSE on matters specified under the SEBI Circular dated September 19, 2022 , by October 31, 2024, for the financial year 2023-24.
Additionally, in terms of Regulation 91E(1) of the SEBI LODR Regulations, 2015, Social Enterprises that have registered or raised funds through the SSE must submit an Annual Impact Report to the SSE by October 31, 2024, for the financial year 2023-24.
Self-Regulatory organizations for social impact assessors in the context of SSE
May 27, 2024: SEBI vide the circular dated May 27, 2024 has enlisted SROs for Social Impact Assessors in the context of Social Stock Exchange ("SSE"). According to Regulation 292A(f) of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 ("SEBI ICDR Regulations") a Social Impact Assessor means an individual registered with SROs under the Institute of Chartered Accountants of India ("ICAI") or such other agency, as may be specified by the Board, who has qualified a certification program conducted by National Institute of Securities Market.
Pursuant to this circular, SEBI has stipulated that, in addition to the SRO under the ICAI, the following agencies are also specified as SROs for Social Impact Assessors in the context of Social Stock Exchange:
a. ICMAI Social Auditors Organization (ICMAI SAO) under the Institute of Cost Accountants of India.
b. ICSI Institute of Social Auditors (ICSI ISA) under the Institute of Company Secretaries of India.
10. Modification in requirement of inspection of accredited warehouses by Clearing Corporations (CCs)
May 29, 2024: SEBI, vide a master circular dated August 4, 2023 (Master Circular for Commodity Derivatives Segment), had prescribed various requirements for stock exchanges and CCs for compliance in commodity derivatives segment. SEBI vide circular dated May 29, 2024, has modified the requirement stated in Para 12.16.2 (ii) of Master Circular for Commodity Derivatives Segment as follows:
"Such inspections shall be carried out in each accredited storage facility, with a gap of not more than six months between two inspections/audits of same storage facility. However, in case there are NIL stocks in an accredited storage facility during preceding six months, the number of such inspections may be limited to once in a calendar year. Only in the event, there are NIL stocks in an accredited storage facility continuously during the calendar year, the Clearing Corporations would be exempted from requirement of inspection by independent agency.
In case of NIL inspection by independent agency in previous calendar year, the clearing corporation shall ensure the compliance of Para 12.16.1(Chapter 12 of the Master Circular) before allowing accredited warehouse to accept new deposits."
This circular shall be effective from calendar year 2024.
11. Investor Charter for Depositories and Depositories Participants
May 29, 2024: In order to facilitate investor awareness regarding dematerialization/ rematerialization of securities, transmission of securities, settlement instruction, consolidated account statement, grievance redressal mechanism, SEBI had formulated the Investor Charter for Depositories and Depository Participants in November 2021 ("Investor Charter for Depositories and DPs"). This Investor Charter for Depositories and DPs includes the information for investors on aforesaid issues and advised Depositories to disclose the same on their respective websites.
Due to recent developments in the securities market, such as the introduction of the Online Dispute Resolution ("ODR") platform and SCORES 2.0, SEBI has revised the Investor Charter for Depositories and DPs vide its circular dated May 29, 2024. The updated Investor Charter for Depositories and DPs includes, inter alia, details on services provided to investors, their rights, various activities of depository through DPs with timelines, dos and don'ts for investors, investor responsibilities, a code of conduct for depositories and DPs, and the grievance redressal mechanism.
The circular is effective from the date of issuance i.e. May 29, 2024.
12. Investor Charter for Stock Exchanges
May 29, 2024: In order to facilitate investor awareness regarding stock exchange activities, services, grievance redressal mechanisms, and investor rights and obligations, SEBI had formulated the Investor Charter for Stock Exchanges in November 2021 ("Investor Charter for Stock Exchange"). This Investor Charter includes guidance on market activities related to broker defaults and investor advisories, and SEBI advised stock exchanges to disclose it on their websites.
Due to recent developments in the securities market, such as the introduction of the ODR platform and SCORES 2.0, SEBI has revised the Investor Charter for Stock Exchange vide its circular dated May 29, 2024. The updated Investor Charter for Stock Exchange includes, inter alia, details on services provided to investors, their rights, stock exchange activities with timelines, dos and don'ts for investors, investor responsibilities, a code of conduct for stock exchanges, and the grievance redressal mechanism.
This circular is effective from the date of issuance i.e. May 29, 2024.
13. Ease of Doing Business - Internet Based Trading for Stockbrokers
May 30, 2024: The SEBI has issued a circular on May 30, 2024, to enhance the ease of doing business and remove obsolete compliance requirement related to activities of MIIs, inputs or suggestions were sought from various stakeholders. In this regard, there were requests pertaining to Internet Based Trading ("IBT") from Industry Standard Forum ("ISF") of stockbrokers.
Consequently, Clause 1.1. and Clause 1.1.2.4.3.3 of Chapter 2 of SEBI Master Circular for Stock Exchanges and Clearing Corporations dated October 16, 2023, were amended, inter alia, respectively as follows:
a. Brokers must apply for formal permission to provide IBT services, and stock exchanges must respond within 7 calendar days, reduced from 30 days
b. The requirement for brokers to periodically confirm IBT trade statistics before publication is removed. Exchanges will publish IBT statistics based on the details provided by brokers and may obtain necessary information or declarations about IBT terminals from brokers.
This circular is applicable from immediately effect.
Contributors to the newsletters:
- Nusrat Hassan, Managing Partner
- Sayantani Dutta, Partner
- Ambuj Sonal, Partner
- Tanvi Pande, Principal Associate
- Abhinav Anand, Senior Associate
- Tamilarasi A Mudaliar, Senior Associate
- Kunal Mehta, Senior Associate
- Sweety Dutta, Associate