August 22, 2019 3:09:04 am
The Securities and Exchange Board of India (SEBI) on Wednesday eased the regulatory framework for foreign portfolio investors (FPIs), simplified their KYC requirements and permitted them to carry out off-market transfer of securities.
The FPI regulations have been revised based on the recommendation of a committee headed by former RBI Deputy Governor HR Khan. The Sebi said FPIs would be now be classified into two categories instead of three. It also removed broad-based eligibility criteria for institutional FPIs to “simplify and expedite” the registration process of FPIs. “Documentation requirements for KYC have been simplified,” Sebi said.
According to the revised norms, registrations for multiple investment manager structures has also been simplified. It has also rationalised the requirements for issuance and subscription of offshore derivative instruments. Under the new norms, offshore funds floated by mutual funds will be allowed to invest in the country after registration as FPIs.
Among others, entities established in the International Financial Services Centre (IFSC) will be deemed to have met the criteria for FPIs. To attract more overseas funds into the market, central banks that are not members of the Bank for International Settlements would be eligible for registration as FPIs. “FPIs shall be permitted for off-market transfer of securities which are unlisted, suspended or illiquid, to a domestic or foreign investor,” Sebi said.
Worries over ‘super-rich’ tax for FPIs remain
While the Sebi has eased the regulatory framework for foreign portfolio investors (FPIs), especially KYC requirements, and permitted them to carry out off-market transfer of securities, a big area of concern for FPIs remains unaddressed. The government is yet to resolve the issue of ‘super-rich’ tax on FPIs that has led to outflows of over Rs 22,000 crore from the stock market in July and August so far. Despite representations from FPIs, the government has not yet relented on the tax issue, leading to worries whether outflows will continue or not.
The Sebi has also approved the norms for migration of companies listed on the Innovators Growth Platform (IGP) to regular trade category on the main board.
Apart from this, Sebi said it will amend regulations pertaining to credit rating agencies, where the agencies will be mandatorily provided information on debt defaults of companies to enable them to review ratings on these companies. SEBI had recently taken action against agencies following a series of sudden downgrades and withdrawals of ratings and for failing to identify potential defaults in time. Rating agencies have often cited the lack of information shared by companies as a reason for their delayed response.
The collapse of IL&FS — which was a triple A rated company — following a series of defaults has raised a question mark over the functioning of rating agencies. The Sebi has also introduced an amendment to the prohibition of insider trading. It will provide an informant on insider trading a reward for up to 10 per cent of the disgorged amount. The maximum an informant can be awarded will be Rs 1 crore.
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