SEBI proposes easier accreditation for wealthy, sophisticated investors

The Securities and Exchange Board of India (SEBI) has introduced proposals to simplify the Accredited Investor (AI) framework, aiming to broaden the range of investors who can access regulatory exemptions in investment products like alternative investment funds (AIFs), portfolio management services (PMS), and specialized investment funds (SIFs). SEBI's primary goal is to decrease paperwork and associated costs, while emphasizing the sophistication of investors rather than their minimum investment commitments.

Under the proposed changes, investment managers would be responsible for determining and recording an investor's accredited status during the onboarding process, rather than requiring investors to seek accreditation from a separate agency. The existing accreditation agency route would remain available as an option.

Products managed by the same manager or group would maintain a three-year validity period for accreditation, while those offered by different managers would require re-accreditation upon each new investor onboarding. Self-certification by investors is prohibited.

SEBI has expressed concerns about this change potentially deviating from its 2021 position, which involved independent agencies carrying out accreditation. This shift to manager responsibility could introduce conflicts of interest and inconsistency in standards. To mitigate these concerns, SEBI has proposed safeguards, such as accreditation policies, robust record-keeping, independent oversight, audits, and penalties for incorrect or fraudulent accreditation.

Additionally, SEBI has introduced a new eligibility route based on securities market assets. Individuals with a minimum of ₹5 crore in such assets, as well as corporations and trusts holding at least ₹20 crore, could qualify for accreditation. Eligible assets include equity, debt, REITs/InvITs, AIF units, mutual funds, futures open interest, unlisted securities, and overseas securities investments.

SEBI estimates that the ₹5 crore threshold could make approximately 3.7 lakh investors eligible, roughly quadrupling the current AIF investor base and potentially stimulating more risk capital.

Another significant proposal is to classify all persons residing outside India, including foreign portfolio investors (FPIs), as accredited investors. This move would enable foreign capital inflows and deepen risk capital within Indian markets. SEBI has also suggested that a limited liability partnership (LLP) could qualify as accredited if all its partners meet the accredited investor criteria, and that a wholly-owned subsidiary could be considered accredited if its parent entity meets the requisite net-worth requirement.

Comments on SEBI's draft proposal must be submitted in English and in full sentences, and cannot be abusive or personal. SEBI invites public feedback on the proposed changes until September 3.