SEBI updates foreign portfolio regulations

0
88
SEBI

The Securities and Exchange Board of India has released SEBI (Foreign Portfolio Investors) Regulations, 2019, to replace SEBI (Foreign Portfolio Investors) Regulations, 2014. The FPI regulations, 2019 seek to simplify the 2014 regulations by incorporating the recommendations from an expert committee formed last year to review the regulations.

The FPI regulations, 2019, has reformed three categories into two: Category I and Category II. The broad-based condition required to seek registration as a Category II FPI under the 2014 regulations has also been removed.

The FPI Regulations, 2019, inter alia, stipulate that a fund can seek registration as a Category I FPI in the following situations:

  • An appropriately regulated fund in a Financial Action Task Force (FATF) member country;
  • An unregulated fund in an FATF member country where the investment manager is appropriately regulated and registered as a Category I FPI;
  • An entity with an investment manager from an FATF member country that is registered as a Category I FPI; or
  • An entity that is at least 75% owned, directly or indirectly, by another entity that is eligible for Category I FPI registration as per (1), (2), and (3) above, and is an FATF member.

Funds set up in an International Financial Services Centre, as defined under clause (q) of section 2 of the Special Economic Zones Act, 2005, can also register as FPIs.

The FPI regulations, 2019 stipulate that only Category I FPIs shall be allowed to issue offshore derivative instruments (ODIs), and such ODIs shall be permitted to be subscribed only by persons eligible to seek registration as Category I FPIs with SEBI. The concept of opaque structure has also been removed by SEBI.

The operational guidelines are awaited, and should consolidate the frequently asked questions, circulars and guidelines released by SEBI under the 2014 regulations; they should also provide requisite clarifications to custodians as well as investors.

The business law digest is compiled by Nishith Desai Associates, a research-based international law firm with offices in Mumbai, New Delhi, Bengaluru, Singapore, Silicon Valley, Munich and New York. The firm specializes in strategic legal, regulatory and tax advice coupled with industry expertise in an integrated manner.