SEBI widens who counts as an 'accredited investor' in alternative investment funds, mandates dispute resolution

The Securities and Exchange Board of India has amended the Alternative Investment Funds Regulations, 2012 to widen who qualifies as an 'accredited investor' and to require alternative investment funds to resolve investor disputes through mediation, conciliation or arbitration rather than litigation alone. Previously, accreditation required a certificate from a specified accreditation agency. The amendment now also recognises a person accredited by any SEBI-registered or SEBI-regulated entity, applying eligibility conditions SEBI will specify from time to time, including a minimum securities-market exposure threshold as an alternative to the existing net-worth tests for individuals, limited liability partnerships and other bodies corporate.

The proviso exempting Category I foreign portfolio investors and sovereign wealth funds from the accreditation requirement has been removed, while persons resident outside India under the Foreign Exchange Management Act, 1999 have been added to the categories of investors treated as accredited without a separate certificate. Separately, the amended Regulation 25 requires that all claims and disputes between investors and an alternative investment fund or its manager arising from the fund's securities-market activities be submitted to a dispute-resolution mechanism involving mediation, conciliation or arbitration, as SEBI specifies, and bars any loss or expense the manager incurs in resolving such disputes from being met out of the fund's own property. The regulations took effect on publication in the Official Gazette.