Sebi eases norms for registration of FPIs, junks 'broad-basing' criteria

The Securities and Exchange Board of India (Sebi) on Wednesday issued a notification for easing the process for on-boarding overseas investors. The notification states that foreign portfolio investors (FPIs) are no longer required to meet the ‘broad-basing’ criteria, under which at least 20 investors were required to establish a fund.

However, in order to ensure the money coming in is clean, the FPI or underlying investors — contributing a minimum of 25 per cent or identified on the basis of control — should not be part of the Sanctions List notified by the UN Security Council, and also should reside in the country identified in the public statement of the Financial Action Task Force (FATF) as delinquent countries. 

Central banks that are not members of the Bank for International Settlements (BIS) will be allowed to register as FPIs. This would enable central banks from over 60 countries, including those from Mauritius, Cyprus, and West Asian ones such as Abu Dhabi, Dubai, Kuwait, Oman, and Qatar, to invest as FPIs.

The erstwhile three categories of FPIs have been merged into two. Category I will include central banks, sovereign wealth funds, pension funds, banks, asset management companies, portfolio managers, and entities from FATF member countries. Category III has now been converted into category II, comprising corporate bodies, charitable organisations, family offices, individuals and unregulated funds in the form of limited partnerships and trusts.  

Offshore funds floated by Indian fund houses will be permitted to invest in the domestic markets under the FPI route, and be required to obtain registration as an FPI within 180 days from the date of notification of the regulations. Transactions between multi-manager investment structures with the same beneficial owner and a common PAN, have been allowed. 

“The new regulations will help ease some pain FPIs faced in the past and bring in new entities to India,” said Suresh Swamy, partner at PwC India. 

“The changes incorporate global benchmarks direction given that there exists a robust risk management framework in the form of placing reliance on international bodies like IOSCO and FATF. This should provide ease of access to foreign investors looking at India as an investment destination and boost capital flows in the Indian markets,” added Sameer Gupta, Tax Partner, Financial Services, EY India.

Some of the changes notified on Wednesday are based on the final report submitted by the HR Khan committee in May. Experts said the easing could give a fillip to overseas investment in the country. The long-standing demand of FPIs to allow Free of Cost transfer in case of mergers in their home country where there is no change in beneficial owner continues to be outstanding, though.