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  • What is the SEBI Circular SEBI/HO/IMD/DF6/CIR/P/2020/24 dated February 05, 2020 all about?
  • Is there a standard format of the Audit Report?
    SEBI has not issued any format of Audit Report or suggestive checklist. The report should be made in line with the generally accepted audit standards for internal audit. An AIF may prefer to have an Auditor that has relevent experience in financial markets with adequate knowledge of business to enable covering all critical areas of Audits. The Circular also madates recording corrective steps while making submission to SEBI.
  • Can the Statutory Auditor of an AIF conduct this Audit?
    No! The Statutory Auditor of an AIF cannot conduct the audit under this circular for the reasons given hereunder: Section 144 of the Companies Act, 2013 prohibits Statutory Auditor from providing internal audit services to the Company. The Statutory Audit Report of a Company’s financial statements includes a statement on Internal Audit system of the Company. (CARO 2020). So a Statutory Auditor should not be commenting on his own Audit Report. In case of other structures like Trust too, the same principles should prevail as it is imperative to maintain independence of Internal Auditor and Statutory Auditor. Note: The circular of SEBI is silent, but the response is based on other applicable laws and founding principles of audits including independence and the fact that one should not review his own work.
  • What is the effective date of the Circular? What is the effect of effective date on Audit requirement?
    The Circular is effective from March 1, 2020. As per circular SEBI/HO/IMD/DF6/CIR/P/2020/99 dated June 12, 2020, the audit requirement is applicable from Financial Year 2019-2020.
  • Whether an AIF that has not raised funds required to undergo the Audit?
    No! Audit is not applicable to AIFs that have not raised funds. However a Certificate from a Chartered Accountant to the effect that no funds have been raised shall be submitted to Trustee or Board or Designated Partners of the AIF, Board of the Manager and SEBI, within 6 months from the end of the Financial Year. For FY 2019-20 the deadline is December 31, 2020. The audit is required if the AIF has raised fund. It is applicale to all AIFs whether the funds have been raised in the current Financial Year or earlier Financial Years.
  • What is the timeline for Audit?
    The Audit should be complete within 6 months of the end of relevant financial year. For FY 2019-20 the deadline is December 31, 2020. The Statutory Auditor shall also be required to review this report before finalisation of annual accounts.
  • Should the report be submitted to SEBI even if there are no adverse findings?
    Yes! A copy of the report should be submitted to SEBI even if there are no adverse findings in the Audit Report.
  • Does the circular mandate any Audit? If so, what are the major conditions?"
    Yes! The Circular mandates an annual audit in order to ensure compliance with the terms of PPM. Major Conditions: The audit can be carried out by either internal or external auditor/legal professional. Audit of sections of PPM relating to ‘Risk Factors’, ‘Legal, Regulatory and Tax Considerations’ and ‘Track Record of First Time Managers’ shall be optional. Audit shall be conducted annually.
  • Are certain kind of AIFs exempted from requirements of implementing PPM templates and Audit?
    Yes! The following are exempted from the requirements of PPM Templates and Audit: Angel Funds as defined in SEBI (Alternative Investment Funds), Regulations 2012. AIFs/Schemes in which each investor commits to a minimum capital contribution of INR 70 crores (USD 10 million or equivalent, in case of capital commitment in non-INR currency) and also provides a waiver to the fund from the requirement of PPM in the SEBI prescribed template and annual audit of terms of PPM, in the manner provided at Annexure 3.
  • What is SEBI Circular SEBI/HO/IMD/DF6/CIR/P/2020/24 dated February 05, 2020 all about?"
    This Circular aims at setting minimum standards for disclosures to be made in a Private Placement Memorandum (PPM) of an Alternative Investment Fund (AIF) by way of simple and comparable templates. The circular contains 2 templates in the form of Annexures: Annexure 1 - Applicable to AIFs under Category I and Category II. Annexure 2 - Applicable to AIFs under Category III. Both the templates are divided into 2 parts viz; Part A - section for minimum disclosures, and Part B – supplementary section to allow full flexibility to the Fund in order to provide any additional information, which it deems fit. The Circular also mandates an annual audit to ensure compliance with conditions of PPM. Download SEBI Circular...
  • To whom are the findings of Audit communicated?
    The findings of the audit, along with corrective steps, if any, shall be communicated to the Trustee or Board or Designated Partners of the AIF, Board of the Manager and SEBI.
  • What are the timelines for compliance with Benchmarking requirements?
    Performance Benchmarking shall be done on a half yearly basis, based on the data as on September end (unaudited) and March end (audited). AIFs have to provide data to Benchmarking Agencies within 45 days of the end of September HY and within 6 months from the end of March HY. The Benchmarking has to be done since September 2019. Associations and Benchmarking Agencies will have to ensure that the first industry benchmark and AIF level performance versus Benchmark Reports are available latest by October 01, 2020.
  • How can SecMark assist AIFs in Benchmarking process?
    SecMark can assist AIFs in getting the Benchmarking done on an end to end basis so that the AIFs can focus on their business. The assistance from SecMark can include: Preparation and collating of data in the format and templated provided by the Benchmarking Agencies which include scheme-wise valuation and cash flow data and other relevant information. Coordinating with Benchmarking Agencies and assistance in resolving their queries. Verification of Benchmarking processes and confirming the correctness thereof. Co-ordination for data and information for customised performance report from Benchmarking Agency. Disclosure of the performance versus benchmark report in PPM and other marketing material or reports to any investor. Assist in getting the valuation from valuation agencies.
  • What is Benchmarking of AIF all about?
    With an intention to allow investors to understand the performance of an AIF and its comparative study across AIF industry and other asset classes, SEBI has mandated benchmarking of performance of AIFs. SEBI rightly believes that it is necessary to develop and standardise an industry benchmark to allow investors to take informed decisions. So far SEBI has issued two circulars relating to benchmarking, viz: "Disclosure Standards for Alternative Investment Funds (AIFs) for PPM and Benchmarking" issued vide circular no. SEBI/HO/IMD/DF6/CIR/P/2020/24 dated February 5, 2020. Clarifications with respect to "Disclosure Standards for Alternative Investment Funds (AIFs) for PPM and Benchmarking" issued vide circular no. SEBI/HO/IMD/DF6/CIR/P/2020/99 dated Jun 12, 2020.
  • What information would be required by benchmarking agencies to evaluate the performance of AIFs?
    AIFs shall provide data on cash flows, valuation or any other details of their scheme-wise investments to the Benchmarking Agencies in the form and format required by each Benchmarking Agency. The performance reporting and benchmarking shall be carried out on pre-tax Net Asset Value (NAV) of the Scheme.
  • Who will do the Benchmarking?
    Benchmarking Agencies notified by an association of AIFs (“Association”), which represent at least 33% of the number of AIFs shall carry out the benchmarking process. As on today i.e. June 23, 2020 the associations are in process of identifying and evaluating such agencies.
  • Are the Benchmarking requirement applicable to all AIFs, or there are some exemptions?"
    Benchmarking requirements are applicable to AIFs / Schemes that have completed at least one year from first close as on March 31, 2020. Following AIFs are exempted from the requirement: Angel Funds registered under sub-category of "Venture Capital Fund" under Category I - AIF. AIFs that are yet to complete one year from first close at the end of financial year.
  • Where do I get clarifications regarding the calculation of amount etc.?
    You can write to Shri Ashok Jumar J, DGM at SEBI on or call on +912226449352 for any clarifications regarding the scheme.
  • What happens if I do not accept the settlement scheme and do not make payment?
    Availing offer of settlement is completely voluntary. If you choose not to settle under the current offer for settlement then SEBI will issue a Show Cause Notice to you. Once you receive the Show Cause Notice you should file a reply and avail an opportunity of personal hearing where you can represent yourself or can appoint an authorised representative to represent your case. If SEBI finds merits in your submission, you will be exonerated of the charges and if SEBI is not satisfied with your submission, it will levy some penalty upon you.
  • How do I go ahead with the settlement process?
    You should follow the following steps: Upload duly executed and notarised "Undertaking & Waivers" as per regulations and keep a scanned copy thereof ready in PDF form. Upload "PAN" Upload "Last 3 years ITR" Pay "Registration Fee" Pay "Settlemement Amount"
  • Can I check on SEBI website whether I am a party to the proceeding?
    Yes you can check the website of SEBI to see if you are a party to the proceeding through following steps: Visit "Penalty Payment" page of SEBI. Select "Settlement Scheme" in "Type of Category" drop down. Enter your PAN and Capcha then press "Go". Your Name, Entity Type, Number of contracts reversed and Artificial volume of trades will be displayed. Click on Check Box on the left of "I agree......" You will be able to see the Settlement Amount, Registration Fee and Total Amount payable by you for settlement.
  • Has SEBI disposed off similar matters earlier? What is the action from SEBI in such matters?
    Yes, SEBI has disposed off several similar matters. SEBI has issued Show Cause Notice to 567 entities who did maximum reversal trades and if you are not one of them, you can believe that your transactions are lesser than these 567 entities. SEBI has issued many orders in these 567 cases and the penalty is in the range of Rs. 5 to 25 lakhs in many cases. In most cases the penalty amount is Rs. 5 Lakhs. So you have a reasonable ground to believe that you may not be penalised more than Rs. 5 Lakhs in the proceedings, thought it cannot be guaranteed. Some sample cases where penalty of Rs. 5 lakhs is levied are given hereunder: Evergreen Technologies Limited. Gladiatory Vyapar Private Limited. IM+ Investments & Capital Private Limited. Lend Lease Company India Limited. Pilot Consultants Private Limited. You can compare your alleged volumes with the above orders to have an idea of possible penalty for your matter.
  • What is Settlement Scheme 2020 all about?
    SEBI came across several instances where a set of entities were consistantly making losses while other set of entities were consistantly making profits by executing reversed trades amongst themselves during the period April 1, 2014 to September 30, 2015. 14720 entities were involved in this activity as per SEBI. With an intention to allow one time Settlement opportunity to these entities, SEBI has come up with "Settlement Scheme 2020". Using this scheme, the Noticees may settle the matter in terms of Regulation 26 of SEBI (Settlement Proceedings) Regulations 2018.
  • How does one know if he is a Noticee about in the current proceeding?
    SEBI has issued letters to all the entities against whom proceeding is in progress. Given below is a sample letter issued by SEBI.
  • Can SecMark assist me in responding to Show Cause Notice of SEBI and Representation?
    Yes, upon receipt of the Show Cause Notice, SecMark can assist you with filing a reply on merits and authorised representatives can be appointed by you for representing your case before SEBI.
  • Where do I get the format of Undertaking & Waivers?
    The format of "Undertakings & Waivers" is given in "Part C" of "Schedule-I" of Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018
  • How can SecMark help me in the settlement process?
    The process is very simple and you generally do not need any assistance for it. However if you still need assistance, SecMark can draft "Undertaking and Waivers" for you and upload documents for you after which payment can be made from your bank account.
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