Introduction
For Alternative Investment Funds (AIFs) in India, the definition of fiduciary responsibility is undergoing a fundamental shift. Traditionally, fiduciary duty was understood largely in financial terms, capital protection, prudent investment decisions, valuation integrity, and regulatory compliance. However, as AIFs become increasingly digital, data-driven, and interconnected with global financial systems, the Securities and Exchange Board of India (SEBI) has made it clear that IT resilience and cybersecurity are now inseparable from fiduciary duty.
This shift is not theoretical. AIFs today handle highly sensitive data, investor identities, KYC records, fund strategies, portfolio company financials, deal pipelines, and confidential communications. A cyber incident does not merely disrupt operations. It can compromise investor trust, expose market-sensitive information, and cause irreversible reputational damage. In this context, weak cybersecurity is no longer an operational lapse. It is a failure of duty of care.
SEBI’s evolving expectations reflect a broader regulatory trend, treating cyber risk as a governance issue rather than a technical problem. This article explains why SEBI now treats IT and cyber security risk management process as a fiduciary responsibility for AIFs, what this means in practice for fund managers and trustees, and how AIFs can operationalise this responsibility in a structured, defensible manner.
Understanding Fiduciary Responsibility in the AIF Context
A fiduciary responsibility exists when one party is entrusted to act in the best interests of another. For AIFs, this responsibility extends beyond returns. Fund managers, sponsors, and trustees are expected to:
- Safeguard investor capital and information
- Act with due care, skill, and diligence
- Anticipate and mitigate foreseeable risks
- Maintain transparency and accountability
In a digital operating environment, cyber risk is a foreseeable risk. Data breaches, ransomware attacks, insider misuse, and third-party compromises are no longer rare events. SEBI’s position is clear. Ignoring or underestimating these risks constitutes a breach of fiduciary duty.
Why Cyber Risk Is Material for AIFs
AIFs face a unique cyber risk profile compared to traditional operating companies:
- Small but high-value datasets
- Concentrated decision-making authority
- Reliance on third-party platforms, advisors, and service providers
- High sensitivity of unpublished price-sensitive information (UPSI)
- Increasing cross-border data flows
A single cyber incident can expose deal strategies, compromise negotiations, or leak confidential investor information. From SEBI’s perspective, this directly undermines market integrity and investor protection, which are core regulatory objectives.
SEBI’s Regulatory Shift: From IT Hygiene to Fiduciary Accountability
SEBI’s evolving guidance reflects a move away from viewing IT and cybersecurity as back-office functions. Instead, they are now treated as governance responsibilities of regulated entities.
This mirrors global regulatory trends where cybersecurity failures are increasingly framed as:
- Governance failures
- Risk management failures
- Oversight failures
For AIFs, this means SEBI cybersecurity guidelines expect decision-makers, not just IT vendors, to be accountable for cyber posture.
Cybersecurity as an Extension of Investor Protection
SEBI’s mandate is investor protection. In the modern financial ecosystem, protecting investors means protecting:
- Their personal and financial data
- Confidential fund information
- Integrity of investment decision-making
- Continuity of fund operations
A cyber incident that exposes investor data or disrupts fund operations directly harms investor interests. Therefore, cybersecurity is no longer optional or a “best practice”. It is a regulatory expectation tied to fiduciary duty.
Why “Delegating to Vendors” Is No Longer Enough
Many AIFs rely on external administrators, cloud platforms, portfolio management systems, and IT service providers. While outsourcing is common and acceptable, fiduciary responsibility cannot be outsourced.
SEBI’s expectations increasingly require AIFs to:
- Perform due diligence on IT and cybersecurity vendors
- Define clear accountability and SLAs
- Monitor ongoing performance and risk
- Retain oversight and control
If a third-party failure leads to a breach, SEBI will still look at the AIF’s governance and oversight mechanisms.
IT Governance as a Board-Level Responsibility
SEBI’s approach implicitly elevates IT governance to the board and trustee level. This means:
- Cyber risk must be discussed alongside financial and compliance risks
- IT controls must align with the fund’s risk appetite
- Cyber incidents must be escalated and reported appropriately
For AIF boards and investment committees, cybersecurity oversight is now part of exercising due care and diligence.
Data Confidentiality and Market Integrity
AIFs often possess information that could materially impact markets if leaked, deal negotiations, exit plans, valuations, and capital deployment strategies. Cybersecurity lapses can lead to:
- Market manipulation risks
- Insider trading concerns
- Loss of competitive advantage
SEBI views protection of such information as integral to maintaining fair and orderly markets. Weak cybersecurity undermines this objective and therefore attracts regulatory concern.
Operational Resilience and Business Continuity
Fiduciary duty also includes ensuring continuity of operations. Ransomware or system outages can:
- Delay capital calls or distributions
- Disrupt reporting and compliance filings
- Impact investor communications
SEBI’s focus on operational resilience aligns with global financial regulators who now treat cyber resilience as a core component of systemic stability, even for smaller funds.
Accountability, Evidence, and Auditability
One of the clearest signals in SEBI’s evolving stance is the emphasis on demonstrable controls. Good intent is not sufficient. AIFs must be able to show:
- Defined IT and cybersecurity policies
- Risk assessments and mitigation plans
- Access controls and monitoring
- Incident response preparedness
- Vendor oversight documentation
From a fiduciary perspective, documentation and evidence are proof that due care has been exercised.
Why Cybersecurity Failures Are Now Governance Failures
When cyber security consulting services incidents occur, regulators no longer ask only “what happened?” They ask:
- Was the risk foreseeable?
- Were controls reasonable and proportionate?
- Was oversight exercised at the right level?
If the answer to these questions is negative, the issue becomes one of governance failure. For AIFs, this directly implicates fiduciary responsibility.
Global Influence on SEBI’s Cyber Expectations
SEBI’s stance aligns with global regulatory developments where cybersecurity is increasingly tied to fiduciary duty. Regulators worldwide now recognise that:
- Financial harm often follows cyber incidents
- Data protection is inseparable from investor protection
- Governance failures amplify cyber risk
SEBI’s expectations should therefore be seen not as an outlier, but as India’s alignment with global best practices in financial regulation.
What SEBI Effectively Expects from AIFs Today
While SEBI may not prescribe specific tools, the expectations are clear:
- Cyber risk must be identified, assessed, and managed
- IT controls must be proportionate to data sensitivity and fund size
- Oversight must rest with accountable leadership
- Incidents must be handled transparently and promptly
These are fiduciary expectations, not optional enhancements.
How This Changes the Role of AIF Leadership
For fund managers, sponsors, and trustees, this shift means:
- Cybersecurity must be part of strategic discussions
- IT risk can no longer be ignored or deferred
- Oversight responsibilities must be clearly defined
Leadership is expected to ask the right questions, not necessarily configure systems. Ignorance is no longer a defensible position.
The Cost of Treating Cybersecurity as “Someone Else’s Problem”
AIFs that treat cybersecurity as a purely technical issue risk:
- Regulatory scrutiny
- Loss of investor confidence
- Difficulty onboarding institutional investors
- Reputational damage disproportionate to fund size
In contrast, those that embed audit in cybersecurity into fiduciary governance signal maturity, professionalism, and long-term credibility.
Why a Structured Operating Model Matters
Ad-hoc controls and informal practices are insufficient. SEBI’s fiduciary lens favours:
- Structured governance models
- Defined roles and responsibilities
- Continuous monitoring and improvement
This is why many AIFs are now adopting formal IT and cybersecurity operating models aligned with regulatory expectations.
How Infodot Technology Helps AIFs Fulfil Their Fiduciary Cybersecurity Responsibility
Infodot Technology supports AIFs in aligning IT and cybersecurity with SEBI’s fiduciary expectations. Infodot approaches cybersecurity not as a tool deployment exercise, but as a governance and risk management capability.
Infodot helps AIFs by:
- Assessing cyber risk in the context of fiduciary duty
- Designing IT and cybersecurity governance frameworks
- Implementing proportionate controls aligned to fund size and risk
- Managing third-party IT oversight and SLAs
- Providing audit-ready documentation and reporting
This enables AIF leadership to demonstrate due care, diligence, and oversight, key elements of fiduciary responsibility under SEBI’s evolving framework.
Conclusion
SEBI’s treatment of IT and cybersecurity as a fiduciary responsibility marks a decisive shift in how AIFs are regulated in India. In a digital-first investment environment, cyber risk is no longer peripheral. It is central to investor protection, market integrity, and operational resilience.
For AIFs, the message is clear. Cybersecurity is not merely an IT concern, nor can it be delegated without oversight. It is a governance responsibility that sits squarely within the fiduciary duty owed to investors.
Those who recognise this shift early and respond with structured, proportionate controls will not only reduce regulatory risk but also strengthen investor confidence and long-term fund credibility. In contrast, ignoring cybersecurity as a fiduciary obligation exposes AIFs to consequences that extend far beyond technology failures.
FAQs
Why does SEBI link cybersecurity to fiduciary duty?
Because cyber failures directly harm investor interests.
Does this apply to all AIFs?
Yes, proportionate to size and risk.
Can AIFs outsource cybersecurity?
Execution yes, responsibility no.
Is cybersecurity now a board issue?
Yes, governance oversight is expected.
Does SEBI mandate specific tools?
No, but expects effective controls.
What data must AIFs protect?
Investor, financial, and deal data.
Are trustees accountable?
Yes, for oversight and governance.
What happens after a cyber incident?
SEBI examines governance and response.
Is documentation important?
Yes, evidence of due care is critical.
Does this affect investor onboarding?
Yes, investors increasingly ask about cyber posture.
Are third-party risks included?
Yes, vendor oversight is expected.
Can small AIFs ignore cyber risk?
No, risk must be managed proportionately.
Does this align with global trends?
Yes, globally cybersecurity is fiduciary.
Are cyber incidents reportable?
Depending on impact, yes.
Is cyber insurance enough?
No, it does not replace controls.
Does SEBI expect continuous monitoring?
Yes, not one-time compliance.
Can poor cybersecurity be penalised?
Yes, through regulatory action.
Is cybersecurity part of investor protection?
Explicitly, yes.
What is IT governance in AIFs?
Oversight of systems and controls.
Does this affect fund reputation?
Significantly, especially after incidents.
Are cloud platforms included?
Yes, oversight still applies.
Is cybersecurity now strategic?
Yes, not operational only.
Can MSPs help AIFs?
Yes, under proper governance.
Does SEBI expect audits?
Increasingly, yes.
Are cyber risks foreseeable?
Yes, widely documented.
Is training required?
Yes, awareness is part of governance.
Does this impact valuation processes?
Indirectly, through data integrity.
Are deal teams affected?
Yes, access and data controls apply.
Is zero risk expected?
No, reasonable risk management is.
Does this change compliance burden?
It increases governance expectations.
Can cyber risk affect exits?
Yes, due diligence now includes cyber.
Is investor trust linked to cybersecurity?
Increasingly, yes.
Are policies alone sufficient?
No, execution matters.
Can Infodot support AIF compliance?
Yes, through structured governance.
Why act now?
Because SEBI expectations are already evolving.
