Easing of Access Norms for investment by FPIs

CIR/IMD/FPIC/26/2018 · 2018-02-15 · SEBI

Summary

This circular amends regulatory provisions to ease access norms for Foreign Portfolio Investors (FPIs) in India. It removes the requirement for prior SEBI approval when FPIs change their local custodian or Designated Depository Participant. Additionally, it simplifies continuance procedures by waiving redundant document submissions and allowing reliance on previous due diligence. The document revises FAQs 49 and 100 to simplify the process for adding share classes by removing prior DDP approval requirements for common portfolios while maintaining them for segregated ones. It updates FAQs 6 and 103 to permit FPIs under Multiple Investment Manager structures to appoint different local custodians or DDPs instead of a single one. Additionally, it allows appropriately regulated private and merchant banks to invest on behalf of clients subject to beneficial ownership disclosure and secrecy law conditions. The document clarifies that Private Banks and Merchant Banks are prohibited from investing on behalf of clients and are restricted to proprietary investments. It explicitly deletes FAQ 162, which previously addressed the eligibility of such banks as Foreign Portfolio Investors. Addition

Text

In case, the FPI or its Global Custodian wishes to change the local custodian/DDP, the request for change shall be forwarded to new local custodian/DDP... approval from SEBI shall be sought by concerned FPI is removed; transferee local custodian/DDP shall approve the change and intimate SEBI.

FPIs are not required to re-submit 'Declaration and Undertaking' and information regarding FPI investor groups at the time of continuance of registration, in case there is no change in the information as compared to that furnished to the DDP earlier.

With respect to the process of change of local custodian/DDP by an FPI, it is informed that the new DDP (i.e. transferee) may rely on the due diligence carried out by the old DDP.

Requests for free of cost transfer of assets between FPIs having same PAN and also registered with SEBI operating under MIM structure shall be permitted and can be processed by DDPs at their end without seeking prior approval.

In case common portfolio of Indian securities is maintained across all classes of shares/fund/sub-fund and broad based criteria are fulfilled at portfolio level after addition of share class, prior approval from DDP is not required.

In case of segregated portfolio in India, every fund / sub fund / share class needs to separately fulfil broad based criteria. Further, in case of addition of classes of shares for segregated portfolio, the FPI shall be required to obtain prior approval from DDP.

For granting of such prior approval, DDPs shall obtain declaration and undertaking with respect to PCC, MCV status. In case of addition of one or more than one share class, which are not broad based, an undertaking may be obtained by the DDP that all the newly added share classes shall attain broad based status within 180 days from the date of approval issued by DDP.

It has already been clarified in reply to Q 49 of FAQs that in case of simultaneous addition of more than one share class (where segregated portfolio is maintained), which are not broad based, then an undertaking is to be obtained by the DDP that all the newly added share classes will attain broad based status within 180 days from the date of approval issued by DDP.

Further, investments made under such multiple registrations were clubbed for the purpose of monitoring of investment limits. The same position shall continue in the FPI regime. Also, such applicants can appoint different local custodians/DDPs.

It has already clarified in reply to Q 6 of the FAQs that in the FII regime, wherever an entity engages Multiple Investment Managers (MIM structure) it can obtain multiple registrations with SEBI. Further, investments made under such multiple registrations were clubbed for the purpose of monitoring of investment limits. The same position shall continue in the FPI regime. Also, such applicants can appoint different local custodians/DDPs.

Private Banks and Merchant Banks that are regulated by an “appropriately regulator” may be classified as Category II. Further, they will be permitted to undertake investments on behalf of its investors provided the private banks/ merchant banks submit a declaration that i. The details of beneficial owners are available and will be provided as and when required by the regulators; ii. The banks do not have any secrecy arrangement with the investors and all required legal/ regulatory arrangements have been put in place in order to ensure that any secrecy laws or confidentiality clauses do not impede disclosure of beneficial owner details as and when required by Indian regulators.

In addition to (i) and (ii), such entities shall also be allowed to undertake proprietary investment by taking separate registration with SEBI.

Source: SecMarx — Easing of Access Norms for investment by FPIs. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.