Sebi puts more safeguards for FPI investors

Market regulator Sebi has further amended the “Easing of access norms for investment by FPIs” circular by providing further safeguards. In the new circular, Sebi has asked private banks who invest on behalf of their clients to collect proper KYC details from investors.

The regulator has said this route cannot be used by Indian citizens or non-resident Indians. Also, the collective investment a private bank makes on behalf its clients should be broad-based. A collective investment by the bank should have more than 20 investors with no single one owning more than 49 per cent. 

Sebi has also allowed category-II FPIs to act as participatory notes (p-notes) issuers. But, such funds should apply for a separate registration and would also have to fulfil the broad-basing criteria along with the requirement of a common portfolio.

This clarification from Sebi comes after several market participants expressed their reservations about allowing foreign banks to invest on behalf of their clients on concerns that the route could be misused, like p-notes. Sebi has also said the insurance/reinsurance companies will not be allowed to maintain a segregated portfolio.

Currently, it is a common practice among foreign insurance companies to maintain separate portfolios for unit-linked products and proprietary funds.