The capital markets regulator Securities and Exchange Board of India (SEBI) has mandated that Compliance Officers of managers of Alternative Investment Funds (AIFs) must obtain a mandatory certification from the National Institute of Securities Markets (NISM). This move aims to strengthen governance, standardise regulatory knowledge, and enhance compliance standards in India’s rapidly expanding AIF ecosystem.
Key Highlights of SEBI Circular
Mandatory Certification:
- The Compliance Officer of an AIF Manager must pass the NISM Series III-C: Securities Intermediaries Compliance (Fund) Certification Examination.
Effective Date for Eligibility:
- From 1 January 2027, only certified individuals will be eligible to be:
- Appointed as Compliance Officers of AIF managers, or
- Continue in the role.
Transition Period:
- The industry has been given a one-year transition window to ensure existing compliance officers obtain the required certification.
Immediate Applicability:
- The circular comes into force with immediate effect, though the eligibility restriction applies from January 2027.
Compliance Test Report (CTR):
- Trustees, sponsors, and managers of AIFs must explicitly confirm compliance with this certification requirement in the annual Compliance Test Report prepared by the manager.
Regulatory Basis
- Under the SEBI (Alternative Investment Funds) Regulations, AIF managers are required to appoint a Compliance Officer.
- SEBI is empowered to prescribe eligibility and qualification conditions for this role.
- The new certification requirement is an extension of SEBI’s supervisory and governance mandate.
Why SEBI Introduced This Requirement
Rapid Growth of AIF Industry:
- Assets under management (AUM) have crossed ₹15 lakh crore, compared to around ₹28,000 crore a decade ago.
- The sector has recorded a CAGR of nearly 49% over the last ten years.
Complex Fund Structures:
- Expansion in private equity, venture capital, private credit and structured funds has increased regulatory complexity.
Governance and Risk Management:
- Uniform, updated regulatory knowledge among compliance officers is critical to:
- Prevent governance gaps
- Improve investor protection
- Ensure consistent application of securities laws
Expected Impact
On AIF Managers
- Need to upskill or replace non-certified compliance personnel by 2027.
- Stronger internal compliance and reporting frameworks.
On Compliance Officers
- Higher professional standards and accountability.
- Certification ensures structured understanding of:
- SEBI regulations
- Fund compliance obligations
- Reporting and disclosure norms
On AIF Ecosystem
- Enhanced regulatory discipline.
- Greater investor confidence.
- Alignment with global best practices in fund governance.
About Alternative Investment Funds (AIFs)
- AIFs are privately pooled investment vehicles that collect funds from sophisticated investors.
- Categories:
- Category I: Start-ups, SMEs, infrastructure, social ventures
- Category II: Private equity, debt funds (no leverage)
- Category III: Hedge funds, funds using leverage
- Regulated by SEBI under the SEBI (AIF) Regulations, 2012.
National Institute of Securities Markets (NISM)
- National Institute of Securities Markets
- Established in 2006 as a public trust by SEBI.
- Functions under the Ministry of Finance, Government of India.
- Mandate:
- Capacity building in securities markets
- Certification of market intermediaries
- Research, education and professional training
- NISM certifications are mandatory for several market-linked roles (brokers, mutual fund distributors, compliance professionals).