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SEBI Consultation Paper to enhance investments by FPIs in India

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SEBI has recently released a consultation paper on permitting increased participation of Non–Resident Indians (NRIs) and Overseas Citizens of India (OCIs) into SEBI registered Foreign Portfolio Investors (FPIs) based out of International Financial Services Centres (IFSCs) in India and regulated by the International Financial Services Centres Authority (IFSCA).

In the earlier regime, NRIs / OCIs were not eligible to register as FPIs but were allowed to be investors in FPIs. A thematic study was conducted in 2017 by SEBI with Custodians and Designated Depository Participants (DDPs), for further strengthening the KYC process for FPIs. Thereafter, SEBI, vide circular dated April 10, 2018, clarified that Resident Indian (RIs) / Non-Resident Indians (NRIs) / Overseas Citizens of India (OCIs) cannot be Beneficial Owners of FPIs. However, it was also clarified that if an FPI is an Investment manager of other FPIs and is a non-investing entity, it may be promoted by NRIs / OCIs. The same was also incorporated in the Master Circular for FPIs and DDPs issued on December 22, 2022.

In the current regulatory regime, the NRIs / OCIs cannot be the FPI applicant but can be a constituent of the applicant if they meet the requisite conditions as provided under the FPI Regulations. However, SEBI has over the years received requests for channelling more NRI/OCI investments in the Indian domestic market and off late, the International Financial Services Centres Authority has requested SEBI to allow participation by the NRI investors. However, SEBI believes that such an access would lead to issues of money laundering and manipulation which was highlighted in the report of the Joint Committee on Stock market Scam and matters relating thereto that was presented to Lok Sabha on December 19, 2002.

Thus, it is proposed in the present consultation paper by SEBI that if such avenues of investment is to be allowed, it should be bundled with appropriate risk mitigation measures to address the concern.

Accordingly, if the aggregate contribution of NRIs / OCIs beyond 50% of the corpus of the FPI is to be permitted, it is proposed that this may be made applicable only to such FPIs that are based our of International Financial Services Centres in India and regulated by the International Financial Services Centres Authority. Further, SEBI has also proposed disclosures at a granular level by FPIs and thresholds for such investments made by such entities.

A copy of the SEBI consultation paper is enclosed below.

Readers are welcome to send their views to Regstreet Law Advisors at info@regstreetlaw.com.

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