The International Financial Services Centres Authority (IFSCA) has issued a consultation paper dated August 17, 2024 (Consultation Paper), which proposes the addition of a chapter in the IFSCA (Fund Management) Regulations, 2022 (IFSCA FM Regs) to enable fund management entities (FME) regulated by IFSCA to offer fund management services to third party funds, which are regulated by the IFSCA. The Consultation Paper’s proposals are detailed and analysed below:
Eligibility: Any FME registered with the IFSCA may offer third party fund management services, which is informally known as “Platform Play”. The third-party funds which receive the fund management services should also be regulated by the IFSCA.
Disclosure Requirements: FMEs offering third party fund management services should disclose (to investors) in the offer document (of the third-party scheme) at a prominent place that it is providing third-party fund management services. This disclosure should outline the nature of services, potential conflicts of interest, and any platform play arrangements. Each scheme managed under a platform play must have its investment strategy, objectives, and risks clearly outlined in its PPM.
Governance, Oversight and Risk Management: Each strategy under a platform play should appoint a distinct Principal Officer and Compliance Officer to ensure dedicated oversight and adherence to regulatory requirements. FMEs must implement a comprehensive risk management framework that addresses the unique risks associated with third-party fund management and platform plays. Regular internal audits and reviews should be conducted to ensure compliance with regulatory requirements and internal policies. A robust mechanism should be in place to address investor complaints and disputes promptly and effectively. Although operating under a platform, each strategy should maintain operational independence to prevent conflicts of interest and ensure fiduciary responsibilities are met.
Size Threshold Once a scheme’s assets under management (AUM) is USD 10 million, it would have to migrate into a distinct FME.
ELP Comments
Under the IFSCA FM Regs, every FME is required to have a minimum commitment in the AIF managed by it. Though the Consultation Paper does not spell it out expressly, it may be expected that an FME managing a third-party fund would not be required to have a minimum commitment in such fund.
The Second Schedule of the IFSCA FM Regs prescribes minimum net worth requirements for FMEs. It is unclear from the Consultation Paper if an FME that proposes to manage third party funds would have to comply with any additional net worth requirement.
The Consultation Paper proposes a ceiling of USD 10 million (AUM) on the size of funds that can be managed by third party managers. This suggests that the proposal to permit FMEs to manage third party funds is meant to allow smallish funds, for whom a stand-alone FME would not be economically viable, to use a third-party fund manager.
Disclaimer:
The information contained in this document is intended for informational purposes only and does not constitute legal opinion or advice. This document is not intended to address the circumstances of any individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.
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