Sebi to mull operational framework for new FII regime

Board meeting schedule for October 5

The Securities and Exchange Board of India (Sebi) will soon announce the operational framework to usher into a new regime for foreign portfolio investments in the country. The new framework is aimed at attracting more foreign investment in the country by simplifying the investment norms.

Sources said the Sebi board will meet on October 5 to issue guidelines for the registration of new foreign investor and for moving existing investors on to the new platform.

The new rules have done way with prior registration with Sebi and also have a more relaxed know-your-customer (KYC) approach.

The Sebi board in June had accepted the K M Chandrasekhar Committee’s recommendations on rationalisation of foreign investment routes. The important suggestions included clubbing foreign institutional investor (FII) and qualified foreign investor (QFI) routes into one route and to be called foreign portfolio investor (FPI).

The regulator has already laid out the disclosure and KYC requirements for FPIs but is yet to notify the boarder changes suggested by the committee.

As the new regime is significantly different from the existing one that is in place, Sebi has adopted a cautious approach for implementation to ensure it doesn't lead to any disruptions, a source said. The Sebi board will iron out some of the issues with the FPI framework and would pave the way to migrate to the new system replacing the two-decade old regime, the source added.

Sebi is likely to provide sufficient grace period for transition to the new regime for not just FIIs, QFIs and sub-accounts, but also depository participants, with whom FIIs will have to register going ahead. It will also announce registration charges that foreign investors will have to pay.
Experts have termed the new regime as 'game changer' and have said it will bring India at par with other major global market.

“FPI regime in several ways is path breaking as FIIs entry route into India will now be at par with other markets which is direct, simplified and risk-based KYC will reduce paperwork and make the overall process simpler,” said Vasudha Sundararaman, MD & CEO SBI-SG Global Securities Services.

“The new framework will be a game-changer. The biggest change will be that foreign investors will not have to go to Sebi for registration. The new process will be far simpler than the 25-year old regime that we have right now,” said Sandeep Parekh of Finsec Law Advisors.

Experts added that Sebi will have to unsure that the new system doesn't have any uncertainties and also the tax treatment doesn't get majorily tweaked.

“If it is made clear that the taxation, which was applicable to FIIs, same shall be applicable to FPIs, it will make things clear overall,” said  Sundararaman.

Parekh added, “Foreign investors will be happy as long as there is no uncertainty with the new regime and the current tax treatment is continued with.”
FII 2.0

• All existing routes — FII, QFI — to be clubbed into one
• The new investor class to called foreign portfolio investor (FPI)
• Prior direct registration with Sebi done away with
• KYC based on profile of foreign investor