Mauritius FPIs continue to be eligible for registration, says Sebi

The Securities and Exchange Board of India (Sebi) on Tuesday said foreign portfolio investors (FPIs) from Mauritius will remain eligible for registration, but with increased monitoring.

Sebi’s clarification came after the Financial Action Task Force (FATF) — an inter-governmental body that sets anti-money laundering standards — placed Mauritius on the “grey list”, creating uncertainty among market players. One of the large foreign custodians had put a halt on trades from Mauritius on Monday, raising concerns that others would follow suit and all fresh registrations and purchases routed through Mauritius would be stopped.

Another custodian put out a note saying FPIs currently registered from Mauritius would not be allowed to make fresh purchases of equity, debt, and hybrid securities, or undertake new derivative positions from February 28. Custodians would block the accounts for purchases for such FPIs and permit only sell trades. 

Custodians had reached Sebi seeking clarification and they would likely reconsider the ban after the circular.

When a jurisdiction is placed on the “grey list”, it implies the country has committed to resolving the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. “The FATF does not call for the application of enhanced due diligence to be applied to these jurisdictions but encourages its members to take into account this information in their risk analysis. The intermediaries should take note of the same,” said a note put out by Sebi on Tuesday.

The current Sebi guidelines state that investors resident in a country identified by the FATF as having strategic anti-money laundering or terror financing deficiencies to which counter measures apply are ineligible to register as FPIs. The FPIs should not come from a jurisdiction that has failed to make sufficient progress or not committed to an action plan to address the deficiencies.

“While the FATF has put Mauritius on an increased monitoring list, it does not prescribe a countermeasure, such as a sanction or financial embargo. To that extent, the immediate regulatory impact could be limited,” said Divaspati Singh, partner, Khaitan & Co. He, however, noted that being on the grey list would create a huge perception issue, especially among large investors, such as pension, endowment, and sovereign wealth funds, investment charters which may prohibit investment through Mauritius. Mauritius has been doing its bit to showcase its compliance with international tax norms in the past year. It includes measures, such as stepping up scrutiny of offshore fund structures. 

“Since the completion of its MER (mutual evaluation report) in 2018, Mauritius has made progress on a number of its MER recommended actions to improve technical compliance and effectiveness, including amending the legal framework to require legal persons and legal arrangements to disclose of beneficial ownership information and improving the processes of identifying and confiscating proceeds of crimes," observed the FATF. About 80 per cent of FPIs from Mauritius are already classified as Category-II by Sebi. The grey list tag dashes any hopes of these funds moving to Category I. 

What's more, the remaining 20 per cent of funds in Category I may have to be moved to Category-II, as well considering the country's new status, said experts.