Accreditation agencies

Some SEBI products are open only to accredited investors. One example is large value funds for accredited investors under the AIF Regulations. Accredited investors are people and entities with high income or net worth. Because of that, SEBI lets them have lighter protections.

But someone has to check that claim. Under the AIF Regulations, a person who wants to be treated as an accredited investor approaches an accreditation agency. The agency checks their papers. If the person meets the limits, it issues a certificate of accreditation.

The workbook says an accreditation agency can be one of three things:

• a subsidiary of a recognised stock exchange;
• a subsidiary of a depository;
• any other entity SEBI may name.

Responsibilities of an accreditation agency:

1. Verification of documents submitted by applicants.
2. Timely processing of applications and issuance of the accreditation certificate.
3. Maintaining data of accredited investors.
4. Verification of accreditation status.
5. Maintaining confidentiality of investor information at all times.
6. Any other responsibilities SEBI specifies.

It must have the requisite infrastructure, including systems and manpower, and its framework must be on its website.

Who may act as one.

What it certifies — the accredited investor thresholds.

Deemed accredited investors — Central and State Governments, their developmental agencies and funds, QIBs, Category I FPIs, sovereign wealth funds and multilateral agencies — do not need the agency.

Illustrative figures. An accreditation agency, a depository subsidiary, receives four applications.

Dr Rao now invests Rs 25 crore in a large value fund for accredited investors — the minimum per investor in such a fund.

Could a stock exchange set up its own agency instead? One with 22 years in the market, nation-wide terminals, arbitration, and investor service centres in 24 cities — but a net worth of Rs 180 crore — could not: it misses the Rs 200 crore floor, so its subsidiary is not eligible.

Chapter 15.2.2 (Key Players in AIF Ecospace), under Other terms, defines accredited investors, deemed accredited investors and accreditation agencies, and lists the eligibility conditions for exchange subsidiaries. Expect the Rs 200 crore / 20 years / 20 cities conditions, the three routes for individuals, and who is deemed accredited.

• Accreditation agencies are subsidiaries of stock exchanges or depositories (or other SEBI-specified entities) — not SEBI itself, and not the AIF manager.
• The exchange conditions are 20 years, Rs 200 crore net worth, nation-wide terminals, arbitration, and ISCs in 20 cities. Depository subsidiaries have no such listed conditions.
• Individual thresholds have three alternative routes; the financial-asset tests are strictly more than Rs 3.75 crore and Rs 2.5 crore.
• Body corporates and non-family trusts need Rs 50 crore net worth.
• Partnership firms: every partner must qualify on his own.
• Deemed accredited investors need no certificate — including Category I FPIs, QIBs, sovereign wealth funds and multilateral agencies.