Fairfax looks to settle mutual fund cross-holding norms case with Sebi

Canadian billionaire Prem Watsa-backed Fairfax Financial Holdings Limited is seeking to settle a case pertaining to an alleged violation of mutual fund cross-holding rules with capital markets regulator Sebi.

The Securities and Exchange Board of India (Sebi) rules do not allow any entity to hold more than a 10 per cent stake in more than one mutual fund house.

Fairfax has more than 10 per cent shareholding in two mutual fund houses - Quantum Mutual Fund and IIFL Mutual Fund.

HWIC Asia, an affiliate of Fairfax Financial Holdings, has a 49.2 per cent stake in Quantum Advisors, the sponsor of Quantum Asset Management Company and Quantum Mutual Fund.

Similarly, FIH Mauritius Investments, an entity of Fairfax Group, owns a 13.62 per cent stake in IIFL Wealth Management, which is the sponsor of IIFL AMC and IIFL Mutual Fund, the latest shareholding data with BSE showed.

The capital markets regulator, in October 2021, issued a show cause notice against Fairfax Financial Holdings Limited (FFHL), the ultimate parent entity of Fairfax Group, alleging a violation of mutual fund rules by FFHL, according to the draft IPO documents of Go Digit General Insurance Limited.

Go Digit, a firm backed by Canada-based Fairfax Group, filed preliminary papers with Sebi on August 14 to raise funds through an initial public offering (IPO).

The show cause notice alleged, among other things, that FFHL indirectly holds over 10 per cent voting rights in an asset management company and trustee company of one mutual fund while being an "associate" of the sponsor of another mutual fund.

It was further alleged that "FFHL indirectly holds over 10 per cent of the voting rights in the asset management company and trustee company of more than one mutual fund".

"FFHL had filed a settlement application dated June 3, 2022, with Sebi under the Sebi (Settlement Proceedings) Regulation, 2018," the company disclosed in the draft IPO documents.

The company further said that FIH Mauritius Investments, in which FFHL indirectly holds shares, has since entered into a binding agreement for the sale of certain of its shareholding in IIFL Wealth Management, the sponsor of IIFL Asset Management and IIFL Trustee.

Under the settlement mechanism, an alleged wrongdoer can settle a pending case with the regulator without admission or denial of guilt by paying a settlement fee.