Investment Restrictions
Regulation 78
Investment Restrictions
IFSCA (Fund Management) Regulations, 2025No change in 2026Chapter VI · Other Fund Management Activities
Chapter VI · Other Fund Management Activities
Regulation 78 – Investment Restrictions
High importance about 3 min
Portfolio Management Services: Running PMS — agreements, reporting, investment restrictions and advisory services.
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In plain English
PMS money must be managed strictly per the client agreement. The FME cannot use client portfolios for derivatives without express consent, must ordinarily deal separately for each client (pro-rata allocation at weighted-average price when aggregating), must segregate each client's funds and securities from its own, and cannot hold client securities in its own name except under permitted omnibus structures with client consent.
In plain English
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The rule, in its own words
Read the exact text of Regulation 78
78. (1) The money or securities accepted by the FME shall be invested or managed in terms of the portfolio management agreement between the FME and the client.
(2) The FME shall not use the portfolio of its clients for investment in derivatives, unless express consent has been obtained from its clients.
(3) The FME shall not enter into any transaction for purchase or sale of any security which is periodically or ultimately settled otherwise than by actual delivery or transfer of security except the transactions in derivatives.
(4) A FME shall, ordinarily purchase or sell securities separately for each portfolio management client:
Provided that in the event of aggregation of purchases or sale…
Show the full text
78. (1) The money or securities accepted by the FME shall be invested or managed in terms of the portfolio management agreement between the FME and the client.
(2) The FME shall not use the portfolio of its clients for investment in derivatives, unless express consent has been obtained from its clients.
(3) The FME shall not enter into any transaction for purchase or sale of any security which is periodically or ultimately settled otherwise than by actual delivery or transfer of security except the transactions in derivatives.
(4) A FME shall, ordinarily purchase or sell securities separately for each portfolio management client:
Provided that in the event of aggregation of purchases or sales for economy of scale, inter se allocation shall be done on a pro rata basis and at weighted average price of the 'day's transactions and the FME shall not keep any open position in respect of allocation of sales or purchases effected in a day.
(5) The FME shall segregate each client's funds and portfolio of securities and keep them separately from its own funds and securities and be responsible for safekeeping of clients' funds and securities.
(6) The FME shall not hold the securities belonging to the portfolio account in its own name on behalf of its clients either by virtue of contract with clients or otherwise:
Provided that if the investments of the clients are in jurisdictions permitting omnibus account structure such restriction shall not apply:
Provided further that in case of investments made by the FME through omnibus account structure, it shall ensure that such investments are made subject to prior consent of the clients, and adequate checks are in place to ensure that the clients' securities are earmarked separately.
(7) The FME operating as a portfolio manager, except those providing only advisory services, shall appoint a custodian in respect of securities managed or administered by it.
Statutory text — Principal Regulations, 2025 (as amended to 30 January 2026), consolidated where amended. The notified Gazette text prevails. Tap a highlighted word for how it functions.
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Exceptions and conditions
Taken from the wording of this provision — the carve-outs and conditions worth reading closely.
(2) The FME shall not use the portfolio of its clients for investment in derivatives, unless express consent has been obtained from its clients
(3) The FME shall not enter into any transaction for purchase or sale of any security which is periodically or ultimately settled otherwise than by actual delivery or transfer of security except the transactions in derivatives
Provided that in the event of aggregation of purchases or sales for economy of scale, inter se allocation shall be done on a pro rata basis and at weighted average price of the 'day's transactions and the FME shall not keep any open position in respect of allocation of sales or purchases effected in a day
Provided that if the investments of the clients are in jurisdictions permitting omnibus account structure such restriction shall not apply:
Provided further that in case of investments made by the FME through omnibus account structure, it shall ensure that such investments are made subject to prior consent of the clients, and adequate checks are in place to ensure that the clients' securities are earmarked separately
(7) The FME operating as a portfolio manager, except those providing only advisory services, shall appoint a custodian in respect of securities managed or administered by it
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What this means in practice
Compliance actions
- Applies to
- FME offering PMS
- Frequency
- Ongoing
- Evidence
- Client mandates and consents; Segregation and allocation records
Common mistake
Using client portfolios for derivatives, or aggregating trades, without documented client consent.5
Where it connects
Read alongside
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Check yourself
Quiz Centre
Test yourself on Regulation 78
9 questions in the unified bank test this regulation. Each explains every option and cites the provision.
Under PMS, using a client's portfolio for derivatives requires:
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Your notes
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