INDIA: SEBI Publishes Easing of Access Norms for Investment by FPIs

Monday February 19 2018

The Securities and Exchange Board of India (SEBI)  in  consultation  with  stakeholders  has  decided  to  make the  following  changes  in extant  regulatory  provisions  to  ease  the  access  norms  for  investment by  Foreign Portfolio Investors (FPIs).

Discontinuance of requirements for seeking prior approval from SEBI in case of change in local custodian/ Designated Depository Participant (DDP)

A  Global  Custodian  generally  manages  a  large  number  of  FPI  accounts in  India.  Sometimes they shift these FPIs accounts from one local custodian to another.  At that time, taking specific request letter from each FPI regarding change of local custodian may create operational and logistical challenges. Accordingly, the provision has been amdended to as follows:

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. In case, the Global Custodian  of  FPI  wishes  to  change  the  local custodian/DDP,  then  the  request  for  change can be sent by the Global Custodian on behalf of  its  underlying  FPI  clients  provided  such Global Custodian     has     been explicitly authorized to take such steps by the client.

Rationalization of procedure for submission of PCC/MCV Declarations and  Undertakings  (D&U)  and  Investor  grouping  requirement  at  the  time  of  continuance of registration of FPIs:

At  the  time  of  FPI  registration  /  conversion,  PCC/MCV D&U  and  information  regarding  FPI  investor  group  is  provided  and  the  same  are  recorded  in  NSDL  portal.  In  case  there  is  no  change  in  the  information  already  submitted,  the  requirement  to  resubmit  PCC/MCV  D&U  and  information  regarding  FPI  investor  groups at the time of continuance is being dispensed with. Accordingly, FAQ 51 has been changed:

In the FII regime, an FII/SA at the time of   payment   of   registration   fee   for continuance   of   its   registration   as FII/SA was not required to submit Form A.  The same practice shall  continue  in the FPI  regime.  Further,  FPIs  are  not  required  to  resubmit ‘Declaration  and  Undertaking’  (as  specified  in  the  SEBI  Circular  No.  CIR/IMD/FIIC/1/  2010  dated  April  15,  2010)  and  information  regarding  FPI  investor  groups,  in  case  there  is  no  change     in the information  as compared to that furnished to the DDP earlier.

DDPs may   rely   on   the   specific declaration from the FPI that there is no change in the   information, as previously furnished. However, it may be noted that the DDP/Custodians will continue to ensure compliance with the KYC due diligence requirement prescribed by SEBI/RBI and changes therein as may be notified from time to time.

Placing reliance on due diligence carried out by erstwhile DDP at the time of change of Custodian/ DDP of FPIs

At the time of change of local custodian/DDP by an FPI, the new local custodian/DDP is required to carry out the adequate due diligence requirement to ascertain the eligibility of the FPI. The due diligence by the new DDP on an already registered FPI at the time of change of local custodian/DDP often leads to increased documentation and sometimes delays the transition. Accordingly, the revised provision is as follows:

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. However, the new DDP is required to  carry  out  adequate  due  diligence  at  the  time  when  the  FPI  applies  for  continuance  of  its  registration  on  an  ongoing basis.

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