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SEBI extends 2FA for MF Subscription Transactions; rolls out Framework for CRAs, Lays guidelines on Preferential Issues for listed REIT, InvIT

The Securities and Exchange Board of India (SEBI) extended the Two-Factor Authentication (2FA) for subscription transactions in units of Mutual Funds (MFs) w.e.f. April 1, 2023.

  • In this regard, the Association of Mutual Funds (AMF) will formulate a schedule for implementation of 2FA by October 14, 2022 and also prepare progress report on implementation of the authentication provisions on a bi-monthly basis, starting from December 1, 2022.
  • This notification was issued by SEBI in exercise  of  powers  conferred  under  Section  11 (1) of the SEBI Act, 1992, read with the provisions of Regulation 77 of  SEBI  (Mutual  Funds)  Regulations,

Key Points:

i.In case of subscription and redemption of units, 2FA (for online transactions) and signature method (for offline transactions) will be used for authentication.

ii.In case of demat transactions, the process of 2FA laid down by the depositories will be followed.

iii.In case of systematic transactions, the requirement of 2FA will be applicable only at the time of registration.

iv.Currently this 2FA is limited to all Asset Management Companies (AMCs) for redemption transactions or online transactions and signature method for offline transactions.

  • 2FA for redemption of mutual fund units was implemented from June 1, 2022 for transactions outside stock exchange platforms and from July 1, 2022 for transactions on stock exchange platforms.

Click Here for Official Notification

SEBI rolls out framework for CRAs w.e.f. January 1, 2023

The Securities and Exchange Board of India (SEBI) formed a new framework for Credit Rating Agencies (CRAs), involving ratings of securities having explicit credit enhancement features w.e.f. January 1, 2023. It is aimed at enhancing transparency and improving the rating process.

  • Credit enhancement refers to all the factors that reduce the risk of a loan as if it were an unsecured loan.
  • This notification is issued by SEBI in exercise of the powers conferred by Section 11 (1) of SEBI Act, 1992 read with the provisions of Regulation 20 of SEBI (CRAs) Regulations, 1999, to protect the interest of  investors  in securities.

Applicability:

This framework is applicable  to  credit  ratings  of  securities  that  are listed,  or  proposed  to  be  listed,  on  a  recognized  stock  exchange,  and other credit ratings that are required under various SEBI Regulations.

Key Points:

i.Under the rule, CRAs can assign the suffix ‘CE’ (Credit Enhancement) to the rating of instruments having explicit credit enhancement.

ii.While assigning such credit ratings, CRAs will have to conduct independent assessment related to the specified support considerations and prepare an internal view and, wherever warranted, obtain an independent external legal opinion.

iii.CRAs will also have to verify the documentation related to the specified support considerations to ensure that the support is unconditional and legally enforceable.

Click Here for Official Notification

SEBI lays guidelines on preferential issues for listed REIT, InvIT

SEBI also made amendments to guidelines for preferential issue and institutional placement of units by a listed REIT and InvIT.

  • The information for the REIT was provided by SEBI in exercise of powers conferred under Section 11(1) of SEBI  Act, 1992 and Regulation 33 of the REIT Regulations while for it InvIT, it was provided by SEBI  under Section 11(1) of the Securities and Exchange Board of India Act, 1992 and Regulation 33 of the InvIT Regulations.

What are the amendments?

i.A listed InvIT and REIT makes a preferential issue of units or institutional placement of units in case units of the same class, which are proposed to be allotted. They also have been listed on a stock exchange for a period of at least six months prior to the date of issuance of notice to its unit holders.

ii.With regard to the issuance of units under institutional placement, no allotment will be made, either directly or indirectly, to any institutional investor, who is a sponsor or manager or is a person related to him/her.

iii.The allotment of units can be made to the sponsor for unsubscribed portion in the institutional placement where at least 90% of the issue size has been subscribed.

It should be noted that REIT comprises of commercial real assets while InvITs comprise a portfolio of infrastructure assets, such as highways and power transmission assets.

Recent Related News:

i.SEBI joined the Account Aggregator (AA) framework that will give a boost to the Reserve Bank of India (RBI)-regulated Financial-Data Sharing System. This will allow customers to share information about their mutual fund and stock holdings with financial service providers.

ii.SEBI also amended the pricing norms for preferential allotment of units by REITs and InvITs.

About Securities and Exchange Board of India (SEBI):

SEBI was constituted as a non-statutory body on 12th April 1988 and later it was established as a statutory body in 1992. The provisions of SEBI Act, 1992 (15 of 1992) came into force on 30th January, 1992.
Chairperson– Madhabi Puri Buch
Headquarters– Mumbai, Maharashtra





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