SEBI has proposed stringent norms to regulate Collective Investment Schemes (CIS). In a board meeting on Tuesday, SEBI mooted net worth criteria for CIS managers and restrictions on their shareholdings and other interest.

Experts told BusinessLine that this would be the first serious attempt by SEBI to rein in dubious CIS managers, who have collected thousands of crores of money from small investors.

SEBI said that the net worth criteria for companies raising funds through CIS would be enhanced and it will also stipulate a requirement of having a track record in a relevant field for registration as a CIS.

CIS schemes first generated controversy after SEBI, more than a decade ago, declared Sahara’s CIS illegal. Dozens of dubious CIS schemes have been unearthed since. 

SEBI said it would restrict shareholding of a CIS management company, its group and associates to 10 per cent. It would also restrict the representation on the board of one CIS management on another company to avoid conflict of interest.

Besides, the mandatory investment of CIS and its designated employees have to align their interests with that of the CIS, SEBI said. There would also be a “mandatory requirement of a minimum number of investors, maximum holding of a single investor and minimum subscription amount at CIS level.” 

SEBI will also rationalise fees, expenses and timelines for the offer period.

The changes have been proposed to “strengthen the regulatory framework for CIS in line with Mutual Fund regulations to remove regulatory arbitrage,” SEBI said.

Disclosure norms

Among other things, SEBI also approved changes to listing obligations and disclosure requirements for simplification of procedure for transmission of securities. Listed companies have to follow disclosure norms wherein they are not supposed to hide sensitive news or information from the shareholders.  

Further, the SEBI board also gave its nod to SEBI-registered custodians in providing services in regard to silver or silver-related instruments, mainly held by silver ETFs of mutual funds. 

To simplify the procedure for transmission of securities, the existing threshold limit for simplified documents would be revised to ₹5 lakh from ₹2 lakh currently for securities held in physical mode per listed issuer. Also, the threshold for securities held in the demat for each beneficiary account would be raised to ₹15 lakh from ₹5 lakh. 

“Legal Heirship Certificate or its equivalent certificate issued by competent government authority will be an acceptable document for transmission of securities,” the regulator said.

According to SEBI, the objective is to ensure that uniform processes are followed by the registrars to an issue and Share Transfer Agents (RTAs)/listed companies, which would further ease the transmission process for investors.

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