The Securities and Exchange Board of India (“SEBI“) in its board meeting held on August 20, 2019 relaxed the norms governing Foreign Portfolio Investors (“FPI“) and has approved the proposed new set of Regulations governing them (“Proposed Regulations“).
The Proposed Regulations is aiming to simplify the operational and compliance requirements. The Proposed Regulations collapsed 57 circulars and 183 FAQs regarding FP’s into a single circular and is a welcome boost to the FPI investment in India. The key aspect of new Regulations, are as follows:
- FPIs have been re- categorised into two categories i.e. Category I and II, instead of the existing three categories i.e. Category I, II and III. This proposed change is a step towards simplification of categorization between the FPIs.
- Registration process for FPIs including registration for multiple investment manager (MIM) structure is proposed to be simplified. By eliminating the documentation requirement for registration under the MIM structures, the Proposed Regulations will substantially reduce registration timelines for additional accounts.
- The broad-based eligibility criteria for institutional foreign investors has been done away with. Relaxing the broad-based criteria will liberalize the FPI route to entities that did not meet the 20-investor threshold.
- At present central banks which are not a member of the Bank for International Settlements (“BIS”), are not eligible for FPI registration. Considering central banks are essentially Government related entities and are low risk and long-term investors, non-BIS central banks are now permitted for FPI registration.
- Given that International financial service centre (“IFSC”) is evolving as an offshore hub for cross border transactions, the Proposed Regulations have specifically clarified that entities established in IFSC be deemed to have met the jurisdiction criteria for FPIs.
- FPIs face an issue exiting due to illiquid or suspended securities. The Proposed Regulations now permits FP’s from conducting off-market transfer of securities which are suspended or illiquid, to a domestic or foreign investor and in turn enabling them to dispose such securities and attain sufficient liquidity.
- Offshore funds floated by Indian mutual funds can now invest in India only after seeking registration as FPI. This step of covering these structures under the ambit of FPI regulations aims to prevent possible regulatory arbitrage and for rationalization of overall regulatory framework.
- The Board has decided that the requirements for issuance and subscription of Offshore Derivative Instruments (ODIs) should be rationalized. The Proposed Regulations are awaited in this regard to understand the extent of this change and the impact on the FPIs.
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