Sebi unveils revised KYC norms for FPIs

Sebi has allowed non-resident Indians (NRIs), overseas citizens of India (OCIs) and resident Indians (RIs) to be constituents of FPI subject to certain conditions.

The Securities and Exchange Board of India (Sebi) on Friday unveiled revised KYC norms for foreign portfolio investors (FPIs). In what could be a big relief to FPIs , Sebi has accepted some of the key recommendations of the HR Khan Committee on FPIs.

According to the new norms, certain categories of FPIs such as trusts, banks, mutual funds, investment managers among others will be required to maintain a list of beneficial owners and report it to the regulator. “Category II and III FPIs registered prior to this circular (existing FPIs) should provide the list of beneficial ownerships (BOs) and applicable KYC (know-your-client) documentation within six months,” said Sebi said in the circular. C The norms said that contributions from a single NRI/OCI/Resident Investor should be below 25 per cent and their aggregate contribution should be below 50 per cent of FPI corpus. Apart from this, investment managers owned by NRIs, OCIs or RIs can control a FPI if the investment manager is regulated in its home jurisdiction and is registered with Sebi as non-investing FPI; or if an investment manager is incorporated under Indian laws and is registered with the market regulator.

Sebi has given two years to existing FPIs and new applicants to comply with its revised norms. “Existing FPIs and new applicants shall be given a time period of two years from the date of coming into force of the amended regulations or from the date of registration, whichever is later in order to satisfy these eligibility conditions. In case of temporary breach, a time period of 90 days will be given to ensure compliance with the above conditions,” said the Sebi circular. The circular also said that clubbing of investment for FPIs should not be done on the basis of beneficial ownership as Prevention of Money Laundering Act.

“Accordingly, there will be a separate set of norms for determining conditions where non-resident Indians (NRIs) and Overseas Citizens of India (OCIs), and Resident Indians (RIs) are constituents and also the basis for clubbing of investment limits,” said Sebi.

Earlier this week Sebi’s board had met and accepted most of the recommendations of a high-powered panel headed by former deputy governor of the Reserve Bank of India , HR Khan on the revised KYC norms for FPIs. The panel headed by Khan had suggested allowing NRIs, OCIs and RIs to be allowed to hold non-controlling stake in FPIs and no restriction should be imposed on them to manage non-investing FPIs or Sebi-registered offshore funds, as also in case of registered investment managers.

On April 10, Sebi issued a circular directing certain categories of FPIs such as trusts, banks, mutual funds, investment managers among others to disclose their beneficial owners within six months. Sebi circular also said that NRIs, OCIs and RIs could not be beneficial owner of a fund investing in India. On August 21, Sebi extended the six month deadline for disclosure by two month to December 31 as it received representations from market participants, seeking review and additional time for complying with the guidelines.

Following this extension, a lobby group named AMRI (Asset Management Roundtable of India) said that the immediate impact of the new norms, if not amended, would be that $75 billion investment managed by OCIs and NRIs will be disqualified from investing into India, and the funds will have to be withdrawn and liquidated within a short time frame. However, Sebi dismissed these claims as “preposterous and highly irresponsible”.

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