What changed
RBI has decided to regularise issuances of partly paid units by AIFs to persons resident outside India that occurred before the March 2024 amendment to the Non-debt Instruments Rules. AD banks must now ensure these issuances are reported on the FIRMS portal and conditional acknowledgements issued before the AIF can approach RBI for compounding.
What it means for you
This circular provides a clear path for AIFs to regularise past non-compliant issuances of partly paid units to foreign investors, reducing legal uncertainty. AD banks play a key gatekeeping role by verifying reporting compliance before RBI compounding, which may increase administrative workload but also offers a structured resolution mechanism.
What you must do
- Advise AIF clients to report past partly paid unit issuances to foreign investors on the FIRMS portal immediately.
- Ensure conditional acknowledgements are issued for such reports before the AIF approaches RBI for compounding.
- Bring this circular to the notice of all relevant customers and constituents dealing with AIFs and foreign investments.
- Review internal processes to handle FIRMS reporting and compounding requests efficiently.
Who it affects
Authorised Dealer Category-I banks, Alternative Investment Funds (AIFs), Foreign investors in AIFs, Compliance and legal teams handling FEMA matters
What does 'regularise through compounding' mean for AIFs?
It means AIFs that issued partly paid units to foreign investors before the March 2024 rule change can now apply to RBI for compounding, which involves paying a penalty to regularise the violation, instead of facing stricter enforcement.
What is the role of AD banks in this process?
AD banks must ensure that the AIF has completed reporting of the issuance on the FIRMS portal and obtained a conditional acknowledgement before the AIF can approach RBI for compounding. Banks also need to inform their customers about this circular.
Does this circular apply to all investment vehicles or only AIFs?
The circular specifically mentions Alternative Investment Funds (AIFs) in the context of regularising past issuances. The enabling amendment covers investment vehicles generally, but the compounding route is explicitly for AIFs.