Sebi notifies FPI norms; ushers in easier operating climate

Sebi today notified new Foreign Portfolio Investor (FPI) regulations to put in place an easier registration process and operating framework for overseas entities seeking to invest in Indian capital markets.
The new regulations, which have come into effect today, replaces the existing Sebi regulations for Foreign Institutional Investors (FIIs) and the new class of investors, FPIs, would encompass all FIIs, their sub-accounts and Qualified Foreign Investors (QFIs).
Under the new norms, FPIs have been divided into three categories as per their risk profile and the KYC (Know Your Client) requirements and other registration procedures would be much simpler for FPIs compared to current practices.

The Securities and Exchange Board of India (Sebi) has also decided to grant them a permanent registration, as against the current practice of granting approvals for one year or five years to the overseas entities seeking to invest in Indian markets.
They will be permanent unless suspended or cancelled by the Board or surrendered by the FPI.
Sebi said that FPIs would need to apply for registration through Designated Depository Participants (DDPs), subject to compliance with KYC norms.

"The designated depository participant shall endeavor to dispose of the application for grant of certificate of registration as soon as possible but not later than 30 days after receipt of application by the designated depository participant," Sebi said.

Sebi has also issued instructions regarding risk-based KYC for FPIs, as per their risk categories.
The Category I FPIs, which would be the lowest risk entities, would include foreign governments and government related foreign investors.
Category II FPIs would include appropriately regulated broad based funds, appropriately regulated entities, broad-based funds whose investment manager is appropriately regulated, university funds,university related endowments, pension funds etc.
The Category III FPIs would include all others not eligible under the first two categories.
Sebi said that all existing FIIs and Sub Accounts may continue to buy, sell or otherwise deal in securities under the FPI regime.

All existing QFIs can also continue to buy, sell or otherwise deal in securities till the period of one year from the date of notification of this regulation. In the meantime, they may obtain FPI registration through DDPs.
The registration granted to FPIs by the DDPs on behalf of Sebi would be permanent unless suspended or cancelled by the regulator.