Sebi mulls framework for FPIs to sell assets after expiry of registration

The Securities and Exchange Board of India (Sebi) on Thursday proposed a mechanism to allow additional time for foreign portfolio investors (FPIs) to liquidate their assets even after the expiry of their registration.

Currently, there is no provision to deal with securities lying frozen in the demat accounts of FPIs whose registration has expired.

Nearly Rs 3,300 crore of 55 FPIs, whose registrations have expired, lie frozen as of June 2023.

Further, 20 such FPIs had written off their securities valued at around Rs 94 crore.

Even after the write-off, these securities remain frozen in demat accounts.

An FPI registration can be cancelled or can expire on the non-payment of fee, non-disclosure of granular details on ultimate beneficial owners for those holding assets beyond thresholds, and change in the regulatory status of the home country of the FPI.

Sebi has planned to allow FPIs to regularise their registration till 30 days after the expiry with a late fee of 2 per cent registration fee per day.

FPIs will also be provided with an additional 180-day window for the liquidation of assets after 30 days.

However, they will have to comply with KYC, anti-money laundering (AML) norms and tax regulations.

For FPIs where timelines for liquidation have already expired, the market regulator has recommended a one-time opportunity for the disposal of securities blocked in the accounts. 

Sebi will provide a 180-day window to dispose of these securities without any financial disincentive.

However, Sebi may impose a 5 per cent fee of the sale amount for FPIs selling the securities after the expiry.

This amount will go to the investor protection and education fund.

For FPIs facing enforcement action, this window will be from the removal of any such regulatory restriction or according to the order of the courts or enforcement body.

For securities of companies that have been delisted or are suspended, Sebi said: “It is proposed to permit the sale of unlisted, suspended, and delisted securities through off-market transfer by such FPIs with expired registrations.”

Securities that remain unsold even after this period will be compulsorily written off with the FPI losing any kind of beneficial interest, including voting rights and other corporate action.

The market regulator has sought comments till February 28.

New plan

--At present, there is no provision to deal with frozen demat accounts of de-registered FPIs

--Regulator proposes 30 days after the expiry for regularising registration with late fee

--180-day period after expiry/liquidation period for disposing of assets

--One-time opportunity without any financial disincentive for FPIs that have already passed liquidation timelines