Sebi proposes to ease compliance burden

KEY PROPOSALS

The Securities and Exchange Board of India (Sebi) has proposed to ease the compliance burden on foreign portfolio investors (FPI) by reducing documentation and doing away with approvals for merger of schemes.

In a consultation paper, Sebi has proposed to exempt FPIs, which have multiple investment managers, from taking its approval for free of cost transfers. Designated depository participants (DPPs) would clear such applications. Foreign funds will also not need approval to change their DPPs, which act as brokers and first-level regulators for FPIs.

Further, Sebi proposes to do away with a majority of the conditions prescribed under the ‘fit & proper’ criteria for category-I and II investors. It says as these are well-regulated in their home jurisdiction, there is no need for additional paperwork. “Category I and II FPIs are essentially government and regulated entities,” explains the discussion paper.

Sebi has also met a longstanding demand of category-II FPIs by tweaking the definition of ‘broad-based funds’, doing away with the requirement to meet a minimum number of investors’ criterion. In the current regulations, an FPI needs at least 20 investors, with none holding more than 49 per cent, to be called a broad-based fund.

However, as a majority of such funds are open-ended, the number of investors could fall below the prescribed 20 threshold at any time, losing the label. Sebi now proposes that in such cases, a fund may continue to remain ‘broad-based’, as long as its underlying investors are banks, sovereign funds or other institutional investors.

Sebi has proposed to relax

Expansion of eligible jurisdictions

Eased criteria to enable more jurisdictions such as other provinces in Canada, to access the domestic market

Rationalisation of fit & proper criteria

Less documentation for category I and II FPIs

Easing of encumbrance obligation

Definition of encumbrance eased; transactions like irrevocable payment commitment kept out

Broad-based definition eased

Minimum investors requirement eased for funds backed by sovereign wealth fund, insurance and pension funds eased

Reduced compliance

Sebi approval done away with while changing depository participant, merger of schemes

Leeway in investments

Permitting banks to invest on behalf of clients the rules for a fund to be registered as a category-I FPI. Until now, only those from countries which are a signatory to the International Organization of Securities Commission’s multilateral memorandum of understanding are eligible. The proposal is that even funds from countries which have diplomatic ties with India and are compliant with our Foreign Exchange Management Act can be category-I FPIs.