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CS Professional · IFSCA - Regulations, Listing and Compliances · Fund Management Services

During a routine review, the compliance officer of Narmada Asset Managers (a registered FME in GIFT IFSC) finds that a scheme breached an investment restriction stated in its placement memorandum. The breach was unintentional and the market has not moved adversely. Which course of action best reflects the FME's ongoing compliance duties?

The FME should rectify the breach promptly, document it and report it to IFSCA and, where required, to investors. Lack of loss is no defence, and concealing the breach or retrospectively amending the memorandum would compound the violation.

  1. AWait for IFSCA's next inspection and disclose then, since the breach caused no loss
  2. BQuietly rebalance the portfolio and record nothing, since no loss arose
  3. CAmend the placement memorandum retrospectively to legitimise the breach, without informing investors
  4. DRectify the breach promptly, document it, and report it to IFSCA and, as required, to investorsCorrect

Explanation

Absence of loss does not excuse a breach. The FME must correct it, keep a record and make the required reporting to the regulator and investors. Concealing it or rewriting the document retrospectively would add further violations.

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