FPI regulations: Sebi-appointed panel suggests significant changes to norms

A Sebi-constituted panel has proposed significant changes to norms governing foreign portfolio investors, including simplified registration requirements for certain categories and barring entities that fail to furnish beneficial ownership details. After consultations with various stakeholders, the working group on Sebi(Foreign Portfolio Investors) Regulations, 2014, has submitted its report to the regulator.

The group, headed by former RBI deputy governor H R Khan, has also pitched for liberalised investment cap, review of prohibited sectors for foreign investment for FPIs, permitting FPIs for off-market transactions and review of restriction on sovereign wealth funds for investment in corporate debt securities.

Among others, it has suggested liberalisation of norms as well as simplified registration requirement for those FPIs coming under category III. Individuals, family offices and hedge funds are among the entities included in this category.

Further, the group has called for removal of 'opaque structure' definition for FPIs. "All FPIs need to provide BO (Beneficial Ownership) details and those who failed to provide BO details including on account of bearer shares cannot deal in securities market in India.

"Thus, there is no need for separate definition of 'opaque structure'. The 'opaque structure' clause may therefore be removed from FPI Regulations," the report said.

The panel noted that FPIs could be allowed to invest up to applicable sectoral limit on an aggregate basis after adjusting for investments made directly or indirectly under the FDI route.

"Indian companies may be allowed to decrease the aggregate limit to 24 per cent or 49 per cent or 74 per cent, as they deemed fit, with the approval of their Board of Directors and its General Body through a resolution," it said, adding that Sebi may take up the proposal for consideration of the government and the RBI.

The report has proposed simplified registration for Multiple Investment Manager (MIM) structures as well as consider pension fund under category I FPI.

Other recommendations include entities majorly owned by investors eligible for category I FPI registration to be deemed as category I, separate registration for sub-funds of a fund with segregated portfolio, alignment between FPI and Alternative Investment Fund (AIF) routes, and strengthening of Offshore Derivative Instruments (ODIs).

The watchdog has sought comments from the public on the working group's recommendations till June 14.