Regulatory Roundup: Sebi, PFRDA Change Capital Market and Pension Rules Significantly – Know the Specifics

Over the last month, in the best interests of the general public, the Securities and Exchange Board of India (Sebi) and the Pension Fund Regulatory Development Authority of India (PFRDA) have implemented a number of significant regulatory adjustments for the capital market and the pension sector.

New regulations for private equity firms sponsoring mutual fund houses and the eligibility of self-sponsored AMCs for sponsorship are two of the adjustments Sebi made.

Promoting New Sponsors

Any organization with a holding of 40% or more in a mutual fund would be regarded as a sponsor. Additionally, candidates for sponsorship must have at least five years of expertise managing funds and be knowledgeable about “investing and managing” assets worth at least Rs. 5,000 crore.

Additionally, a mutual fund sponsored by private equity is not permitted to act as an anchor investor in public offerings of investee firms in which the sponsor has a 10% or greater ownership or board participation.

Additionally, the Sebi has mandated a five-year lock-in for the sponsor’s initial investment in an AMC, which may be extended if the sponsorship is transferred to another company within the private equity group. The private equity’s “conduct” will determine whether it qualifies for sponsorship.

The new regulations are anticipated to promote capital flows, innovation, competition, consolidation, and easier exits for the current sponsors while also growing the mutual fund sector.

Transparency

The regulator has requested the credit rating agencies (CRAs) to regularly examine the stated ratings during the life of the assets in order to promote transparency. If a client refuses to participate, they may nevertheless conduct the assessment using the resources at their disposal.

In the best interests of many market players and investors, it is anticipated to increase openness and information on non-cooperative issuers.

The Environmental, Social, and Governance (ESG) schemes must now invest at least 65% of their assets under management (AUM) in businesses exposed to Business Responsibility and Sustainability Reporting (BRSR), following a rule laid out by Sebi.

As a result, starting on October 1, 2024, ESG schemes will only be able to invest in firms who have thorough BRSR disclosures as they will be required to invest at least 65% of their AUM in companies reporting on BRSR disclosures.

Pension Laws

New rules for pensions have also been issued by PFRDA. It suggested modifying the Point-of-Presence Regulations 2018 to simplify eligibility requirements, decrease application processing times, decrease the number of PoPs, and more. It also suggested that PoPs and CRAs digitize and maintain subscriber information.

The National Pension System (NPS) and other schemes under the PFRDA Act, 2013, would be encouraged to use an effective distribution channel. Sebi has asked the public for feedback on the proposed reforms to ensure that PoPs’ practices on old age income security are fair, effective, and transparent.

PFRDA has extended the deadline for selecting between the Old Pension Scheme (OPS) and NPS to November 30 for the convenience of public personnel. Following complaints from the All India Service (AIS) members, who include officers from the Indian Administrative Service (IAS), Indian Police Service (IPS), and Indian Forest Service (IFS), this one-time option was introduced.

Those who have yet to chose between OPS and NPS may before the new deadline.