Securities and Exchange Board of India

Date: May 24, 2019

PR No.: 14/2019

SEBI publishes the report of Working Group on “FPI Regulations” for public comments

SEBI had constituted a working group on March 26, 2018 under the Chairmanship of Shri H.R. Khan, Deputy Governor (Retired), Reserve Bank of India with the following terms of reference:-

1. To advise SEBI on redrafting the SEBI (Foreign Portfolio Investors) Regulations, 2014 for simplification.

2. To advise SEBI on incorporating the provisions contained in the circulars, frequently asked questions (FAQs) and operational guidelines issued by SEBI concerning Foreign Portfolio Investors (FPIs), in the regulations itself, to the extent possible.

3. To advise on any other issue relevant to FPIs.

The working group has now submitted its report on ‘FPI Regulations’ to SEBI. A copy of the report is placed on the website www.sebi.gov.in.

The report contains recommendations inter-alia w.r.t FPI registration process, know your client (KYC) and simplification of documentation, investment restrictions and other aspects. Few of the key recommendations proposed by the working group are as follows:

1. Ease of access- fast track on-boarding process for select category II FPIs, review of broad based condition for appropriately regulated entities, pension fund to be considered for category I FPI registration, deemed broad based status for insurance/ re-insurance entities, simplified registration for multiple investment manager (MIM) structures, entities established in the international financial services centre(IFSC) be deemed to have met the jurisdiction criteria for FPIs, etc.

2. Simplification of documentation- removal of ‘opaque structure” definition, simplified KYC documentation for category III FPI, KYC reliance on same group regulated entity of custodian for non-PAN documents, etc.

3. Review of Investment restriction – Liberalized investment cap, harmonization between investment restrictions in FPI regulations and FEMA 20(R), reclassification of investment from FPI to FDI, permitting FPIs for off-market transactions, review of restriction on sovereign wealth funds for investment in corporate debt securities etc.

4. Other aspects – strengthening of clubbing restrictions, alignment between FPI and alternative investment fund (AIF) routes, strengthening of offshore derivative instrument (ODI) framework, etc.

The recommendations of the report have been incorporated in the draft FPI Regulations and operating guidelines which are annexed to the report. Further, the FPI regulations have been comprehensively reviewed. Also, all the circulars and FAQs issued have been reviewed and consolidated into a single document as ‘operational guidelines’ forease of FPIs.

Comments from public are invited on the recommendations contained in the aforesaid report along with the draft FPI Regulations and operating guidelines.

The comments may be submitted to fpi-review@sebi.gov.in on or before 12:00 Noon on June 14, 2019.

————————————————–

Securities and Exchange Board of India (“SEBI”) seeks public comments on the ‘Report of the working group on the SEBI (Foreign Portfolio Investors) Regulations, 2014’ submitted by the working group under the Chairmanship of Shri Harun R. Khan, Deputy Governor (retd.), Reserve Bank of India.

1. BACKGROUND

1.1 SEBI (Foreign Portfolio Investors) Regulations, 2014 (“FPI Regulations”) were notified in the year 2014 vide notification dated January 07, 2014. A need was felt to review the FPI Regulations to incorporate the provisions of the circulars/ FAQs and Operational Guidelines issued thereunder to the extent possible and to simplify the language and complexities in the said regulations.

1.2 SEBI has constituted a working group under the Chairmanship of Shri. Harun R. Khan (Retd. Deputy Governor of Reserve Bank of India) assisted by Custodians law firms, Chartered Accountants firms and SEBI officers.

1.3 The working group held wide consultations with various stakeholders on different dates and has arrived at certain suggestions/ recommendations. The working group has submitted its report on the SEBI (FPI) Regulations, 2014 and the same is placed at Annexure-A. Few of the key recommendations proposed by the working group are as follows:

(i) Fast track on-boarding process for select Category II FPIs

(ii) Simplified registration for Multiple Investment Manager (MIM) structures

(iii) Pension fund to be considered for Category I FPI registration

(iv) Review of broad based condition for appropriately regulated entities

(v) Deemed broad based status for insurance/ re-insurance entities

(vi) Entities majorly owned by investors eligible for Category I FPI registration shall be deemed as Category I FPI

(vii) Certain entities owned by Category II eligible investors shall be eligible for Category II FPI registration

(viii) Simplified registration requirement for Category III FPIs

(ix)Removal of ‘opaque structure” definition

(x) Separate registration for sub-funds of a fund with segregated portfolio

(xi) KYC Reliance on same group regulated entity of custodian for non-PAN documents

(xii) Liberalized investment cap

(xiii) Review of prohibited sector for foreign investment for FPIs

(xiv) Review of restriction on Sovereign Wealth Funds for investment in corporate debt securities

(xv) Liberalization for regulated Category III FPIs

(xvi) Permitting FPIs for off-market transactions

(xvii)Harmonization between investment restrictions in FPI regulations and FEMA 20(R).

(xix) Reclassification of investment from FPI to FDI

(xix) Alignment between FPI and AIF routes

(xx) Strengthening of ODI framework

(xxi) Entities established in the IFSC be deemed to have met the jurisdiction criteria for FPIs.

2. PUBLIC COMMENTS

Considering the importance of the recommendations, public comments are solicited on the same. SEBI will examine the recommendations of the working group after receiving the public comments on the same. Specific comments/ suggestions as per the format given below would be highly appreciated.

Name:
Sr. No. Relevant Section and sub-heading Comments and suggested changes, if any Rationale

The comments may either be forwarded by email to fpi-review@sebi.gov.in or may be sent by post to the following address latest by June 14, 2019.

Achal Singh
General Manager
Division of Foreign Portfolio Investors & Custodians
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C4-A, “G” Block,
Bandra Kurla Complex,
Bandra (East), Mumbai -400 051
Issued on: May 24, 2019

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