New Delhi: In a relief to foreign investors worried over new know your customer (KYC) and beneficiary ownership norms, the Securities and Exchange Board of India (Sebi) on Saturday initiated a public consultation process for finalising the new guidelines, after a high-powered panel suggested changes on several contentious proposals and more time for compliance.
Amid concerns in some quarters that several foreign funds, including those managed and owned by non-resident Indians (NRIs) and persons of Indian origin (PIOs), could face difficulties in meeting the new norms even within the extended deadline of December, the panel headed by former RBI deputy governor HR Khan suggested several changes on the basis of inputs from the finance ministry and industry representatives.
Releasing the panel’s interim report for public comments till 17 September, Sebi said the committee suggested that NRIs, overseas citizens of India and resident Indians should be allowed to hold non-controlling stakes in FPIs and no restriction should be imposed on them to manage non-investing FPIs or Sebi-registered offshore funds.
NRIs will be allowed to invest as FPIs if the single holding is under 25% and group holding under 50% in a fund, according to the panel.
The committee also suggested that erstwhile PIOs should not be subjected to any restrictions, while it also recommended allowing clubbing of investment limits for well-regulated and publicly held FPIs having common control. It also favoured doing away with additional KYC documentation requirement for beneficial owners in case of government-related FPIs.
Changes have also been suggested regarding identification of senior managing officials of FPIs and for beneficial owners of listed entities, as well as disclosure of personal information. However, all new rules will apply equally to those investors using the offshore derivative instruments (popularly known as P-Notes).
Besides, the panel suggested giving six months to FPIs for complying with new rules after they were finalised, while non-compliant investors would be given additional 180 days to close their existing positions.
Sebi said the panel was also examining separately whether any recommendation to merge the FPI and NRI/OCI routes of investment can be made to the government and the Reserve Bank of India.
The panel also recommended that Sebi could clarify suitable actions that FPIs need to take for divestment or re-classification of holdings according to FDI limits, after consulting with the RBI. It also suggested that Sebi consult the government to evolve a more objective criteria for defining high-risk jurisdictions.
Sebi had issued a circular in April, proposing new norms on KYC and beneficial owner identification, the deadline for which was extended later by two months till December. The proposed move was aimed at checking any possible re-routing of funds through overseas locations such as Mauritius, Singapore and Dubai. However, several FPIs expressed concerns over the proposed changes in rules and lobby group named AMRI (Asset Management Roundtable of India) recently said the immediate impact of the new norms, if not amended, would be that $75-billion investment managed by OCIs, PIOs and NRIs will be disqualified from investing in India, and the funds will have to be withdrawn and liquidated within a short time-frame. Sebi had, however, said it was “preposterous and highly irresponsible” to claim that $75 billion will move out of India because of Sebi’s circular.
