Expert panel on Variable Capital Company submits report to IFSCA
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An expert committee has suggested separate legal framework akin to Variable Capital Company (VCC) for the purpose of conducting fund management activity in the International Financial Services Centres (IFSCs).
In its report submitted to International Financial Services Centres Authority (IFSCA) Chairperson Injeti Srinivas, the K.P. Krishnan-headed expert committee on feasibility of VCCs in the IFSCs recommended that a legal framework governing entities that undertake fund management would provide certainty and clarity to investors.
Besides such framework would also allow effective segregation and ring fencing of different pools of asset, the ability to issue different classes of shares, and alterations to the funds' capital structure without regulatory approvals, it said.
It will also provide freedom to choose the appropriate accounting standards applicable to funds with different characteristics, and the ability to wind up quickly, the committee said, making a strong case for separate legal framework for VCC.
The IFSCA set up this committee to explore the potential for allowing another legal structure - popularly known as a VCC - as an additional option through which asset managers could pool the investors' funds. The VCC structure dispenses with some of the key limitations of companies and LLPs and provides for higher regulatory standards than those applicable to trusts.
Fund management activities are an important pillar of the overall financial services ecosystem. In line with the mandate given to the committee, it examined the relevance and adaptability of the VCC for the IFSC in India or alternative structures to attract fund business in the IFSC.
Conventionally, pooling of funds in India is undertaken through three types of entities, namely, limited liability companies governed under the Companies Act, 2013; limited liability partnerships under the Limited Liability Partnership Act; and trusts governed under the Indian Trusts Act, 1882.
The committee assessed the features of a VCC or its equivalent, in other jurisdictions such as the UK, Singapore, Ireland and Luxembourg before coming with its suggestions for India.
