INDIA: SEBI Clarifications in Respect of Investment of Certain Category II FPIs

Wednesday March 14 2018

The Securities and Exchange Board of India (SEBI) in view of queries from stakeholders, has made the following clarifications in respect of investment by certain category II FPIs:

(1) The   collective   investment   vehicle   of   private   banks/   merchant   banks  investing on behalf of clients need to ensure the following: –

a) The client/ investor should have fulfilled know your client norms. The beneficial owners (BO) of client/ investor of bank should be identified  in  accordance  with  Rule  9  of  Prevention  of  Money  Laundering  (Maintenance of Records) Rules, 2005

b) The client/ investor or their BO should not be Resident Indian/ NRI/ Overseas Citizen of India

c) The client/ investor is not resident in a country identified in the public statement of Financial Action Task Force as: –

1. a jurisdiction having  a  strategic  Anti-Money Laundering  or Combating  the  Financing  of  Terrorism  deficiencies  to  which  counter measures apply; or
2. jurisdiction that   has   not   made   sufficient   progress   in  addressing the deficiencies or has not committed to an action  plan developed with the Financial Action Task Force to address the deficiencies;

(d) The client/ investor should not have opaque structure(s), as defined under Explanation 1 of Regulation 32(1)(f) of SEBI (Foreign Portfolio  Investors) Regulations, 2014 or Bearer share structure.

(e) The collective investment vehicle of the Bank (other than for ODIs) should  be  broad  based  (more  than  20  investors  and  no  investor having more than 49% stake) and there should be common portfolio for all clients/ investors.

(f) The conditions already specified at point (g) of SEBI circular dated  February 15, 2018 shall continue to be applicable.

(2) Presently,  appropriately  regulated  broad  based  insurance/  reinsurance companies  are  investing  proprietary  funds  and  for  unit  linked/  investment products. In this regard, it is clarified that investment in India by insurance/ reinsurance companies must be maintained  as  an  undivided  common portfolio.  Segregated portfolio or investor/ policy – holder level  investment  structure shall not be permitted.

(3) In respect of other appropriately regulated persons permitted as Cat. II FPIs  viz.  asset   management   companies,   investment   managers/   advisers,  Portfolio managers, Broker – dealer and Swap – dealer. It is clarified that: –

(a) They are permitted to invest their proprietary funds,

(b) These  appropriately  regulated  persons  by  taking  separate  registration  can also invest with client funds as an ODI Issuing FPI or after fulfiling  the  condition  of  being  broad  based  and  having  a  common  portfolio.  However, asset management companies having thematic portfolios can  also have segregated structure if each theme is broad based

(4) All   other   investment   restrictions   and   due   diligence  requirements as applicable to FPIs shall continue to be applicable on entities referred at (1)  to (3) above.

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