India's capital markets regulator, the Securities and Exchange Board of India (Sebi), has unveiled a significant proposal aimed at simplifying the regulatory landscape for Foreign Portfolio Investors (FPIs). The move, detailed in a consultation paper released on Friday, seeks to enhance the ease of doing business by streamlining procedures and creating a more unified rulebook.
Core of the Proposal: Simplification and Streamlining
The cornerstone of the proposed overhaul is a complete update and simplification of the Master Circular governing FPIs and their designated depository participants (DDPs). Sebi plans to consolidate all rules and circulars issued since May 2024 into a single, clearer document. This consolidation is expected to eliminate confusion and create a more cohesive regulatory framework for international investors.
A key highlight is the introduction of a simplified registration process for specific FPI categories. This includes:
- Funds managed by an investment manager already registered as an FPI.
- Sub-funds of an existing master fund.
- Segregated share classes.
- Insurance schemes linked to an already registered entity.
For these eligible applicants, Sebi has proposed an abridged version of the Common Application Form (CAF). Instead of filling out the entire form, they can opt to provide only information unique to the new entity. The remaining details would be auto-populated from the existing registration of the related entity. Custodians will be required to obtain explicit consent to rely on this pre-existing information and ensure its continued accuracy.
Enhanced Procedures and Broader Framework
Once an application is submitted, the process will involve custodians updating the CAF module, while DDPs will issue Sebi-generated registration certificates after verifying eligibility. The regulator has also laid out detailed steps for DDPs, mandating thorough due diligence, clarification of incomplete forms, PAN verification, and checks on country-of-residence and regulatory status.
Beyond registration reforms, the updated circular proposes clearer rules on Know Your Customer (KYC) norms and beneficial-owner identification. It specifies requirements for Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and resident Indians. Furthermore, Sebi has introduced dedicated frameworks for specialized investor categories, including:
- FPIs investing exclusively in government securities.
- FPIs based in International Financial Services Centres (IFSC).
- Banks, insurance entities, and pension funds.
- Funds with multiple investment managers.
The consultation paper also details comprehensive procedures for the renewal, surrender, transition, and reclassification of FPI registrations. It aims to establish uniform compliance and reporting standards for custodians and DDPs, ensuring consistency across the board.
Next Steps and Public Consultation
Sebi has opened the proposals for public feedback, inviting comments and suggestions from all stakeholders. The deadline for submitting comments is December 26. This consultative approach underscores the regulator's intent to refine the framework based on industry input before final implementation.
This proposed revamp is seen as a strategic effort to make India's capital markets more attractive and accessible to global investors. By reducing procedural complexity and compliance burdens, Sebi aims to foster a more investment-friendly environment, potentially boosting foreign capital inflows into the Indian economy.
