After Sebi diktat, Canada FPIs likely to knock on Finance Ministry's door

Foreign portfolio investors (FPIs) from Canada that have been asked to wind down their investments in Indian equities within six months may approach the finance ministry to resolve the current impasse, said two people familiar with the matter.

The Securities and Exchange Board of India (Sebi), in February, had sent out letters to 26 FPIs based in Canada, asking them to shut down their funds as they were from jurisdictions that weren’t signatories to a multilateral framework for cooperation in securities regulation. 

Most of these FPIs belong to the Manitoba province in Canada which is not a signatory to the International Organisation of Securities Commissions (IOSCO), an association that regulates the world’s securities and futures markets.

Most of the funds are pension funds that have been investing in India over the last 10-15 years, said a person familiar with the matter. “Maybe a bunch of new guys at Sebi have come in and taken this view. But it’s not a conscious policy decision that has been taken to disqualify the Canadian entities. So the FPIs can take up the issue with the finance ministry and separately write to the Sebi chairperson. I am sure that the issue will be addressed by the ministry,” the person said.

Canada ranks seventh in terms of FPI investments into India, the total being Rs 1.7 trillion as of February 28 this year. There are 703 category I FPIs from Canada registered in India and 39 category II FPIs. The exact assets under custody of the Canadian FPIs impacted couldn’t be ascertained.

“Not all Canadian provinces have faced this issue. Sebi had reached out to custodians for data pertaining to all FPIs from Canada but have sent out notices to a select bunch from this one province called Manitoba,” said another person familiar with the matter.

Ontario Securities Regulator, Autorité des marchés financiers, Alberta Securities Commission and British Columbia Securities Commission are among the four agencies in Canada regulating various securities.

In 2014, the market regulator had implemented a regime change with lower compliance requirements. Investors could switch from a foreign institutional investor (FII) regime to an FPI regime provided they were from jurisdictions that were IOSCO signatories. A subsequent clarification in 2016 said that funds could continue in Indian markets after paying a conversion fee even after expiry. Last month, however, Sebi reached out to certain funds and said they needed to shut down as they were from non-IOSCO jurisdictions.

FPIs have pulled out over $19 billion from India since October last year.