You are here: Home » Markets » News
Business Standard

Sebi panel eases deal for FPIs, allows NRIs to hold 25% in offshore funds

The move will give FPIs ample time to realign their holdings to comply with the new requirements

Pavan Burugula & Shrimi Choudhary 

Sebi
Sebi. (Photo: Kamlesh Pednekar)

A Securities and Exchange Board of India (Sebi)-appointed experts group on Saturday made a slew of recommendations which are likely to soothe the nerve of (FPIs). The HR Khan-led committee on easing access norms for overseas investors has recommended significant relaxations to the controversial April 10 circular issued by the capital regulator.

In an interim report, the committee has proposed allowing non-resident Indians (NRIs) to hold a non-controlling stake in foreign funds. Further, it has said (PIOs) should be exempted from the ownership restrictions. The move comes as a relief to FPIs, as several overseas investors have expressed concerns about the April 10 circular.

More importantly, the panel has recommended that the (BO) norms mentioned in the circular would only be applicable for purposes, and not for determining the ownership of a fund.

Experts said the recommendations made by the Khan panel would help assuage most of the concerns raised by FPIs. The measures come amid a backlash from overseas investors, who said the applicability of the circular would hit as much as $75 billion of assets in India.

ALSO READ: USL open-offer case: Sebi gives relief to alcoholic beverages firm Diageo

“There were mainly two concerns. The circular would have required NRIs, PIOs and to unwind and discontinue investing as even if the money managed of foreign investors. The second concern was the aggregation of limits in case of common beneficial owners in a situation where it was determined based on senior management officer (SMO) even if there was no common ownership. The recommendation of the committee addresses both these issues,” said Tushar Sachade, partner, financial services, PwC India.

The circular had said the end beneficial owner (BO) of a fund would be determined both by ownership as well as ‘control’.

This had caused concerns that all the funds managed by a single manager could be clubbed for FPI limit calculation purposes. Also, overseas funds managed by NRIs or PIOs would have been rendered ineligible.

“The committee recommends that the circular would be applied for purposes only is a huge relief,” said an foreign fund manager.

ALSO READ: Sebi reopens doors for pending new fund offers in the equity segment

Any entity or person who happens to be a BO according to the new rules will not be subject to any investment restrictions but will be required to provide additional The committee also clarified that an senior management control of fund can rest with anyone including NRI, PIO or FPI.

Addressing another the key concern of the NRIs, the committee has said a single could own up to 25 per cent and NRIs put together can own up to 50 per cent in a foreign fund. However, the committee reiterated the current regulatory stance that no can be BO of an FPI, however, they can act as investment advisors.

Another key takeaway from the report is the exemption given to PIOs from controlling an FPI. The April 10 circular had said no PIO could control an FPI. However, since PIOs are citizens of other countries, Sebi has brought them on a par with foreign nationals in terms of

ALSO READ: Data sharing woes impeding Sebi's several ongoing investigations

The panel has recommended that FPIs who are non-complaint with the KYC circular will be give 180 days to divest their holdings.

The move will give FPIs ample time to realign their holdings to comply with the new requirements, said experts. The panel has also proposed relaxation to FPIs from providing sensitive information such as social security number.

The Khan panel also clarified that the norms would also apply to participatory notes (p-notes)—also called offshore derivative instruments.

Highlights

  • NRIs allowed to own up to 25% in an offshore fund
  • Main focus of circular is to determine KYC and not restrict Indian fund managers
  • Exempt PIOs from applicability of the circular
  • Allow clubbing of investment limits for well-regulated, publicly-held FPIs
  • Six-month timeframe for FPIs to divest holdings in case of non-compliance
  • Consult with government to define high-risk jurisdictions

First Published: Sun, September 09 2018. 00:23 IST
RECOMMENDED FOR YOU