New Norms for FPI | 22 Aug 2019

Recently, the Securities and Exchange Board of India (SEBI) has released new norms that sought to simplify the compliance and operational requirements for Foreign Portfolio Investors (FPIs).

• The norms are issued to check the outflows of FPIs as the shares worth over Rs 22,000 crore were sold in July and August 2019.
  
  • FPIs have been withdrawing from Indian equities after the government introduced higher tax surcharge on the super-rich in the Budget 2019.
  • FPI regulations have been redrafted based on the recommendation of H R Khan committee.
• Revised regulations:
  
  • Removed broad-based criteria: SEBI decided to do away with the requirement that every FPI should have at least 20 investors.
  • Simplification of the KYC ( Know-Your-Customer) document requirement for overseas investors.
  • SEBI has also allowed central banks of countries that are not members of Bank for International Settlement (BIS) to register as FPIs in India.
    
    • According to SEBI, such entities are relatively long term, low-risk investors as they are directly/indirectly managed by the government.
• FPIs shall be permitted for off-market transfer of securities which are unlisted, or illiquid, to a domestic or foreign investor.
• Sebi has also permitted offshore funds floated by Indian asset management companies to register themselves as FPIs and invest in Indian markets.
• Sebi has decided that FPIs may be re-categorized into two categories - Categories I and II - instead of the present requirement of three categories.
  
  • Sebi removed the concept of Category-III FPIs.

These changes will make the regulatory framework more investor-friendly

• Apart from changes in FPIs regulations, SEBI has amended the Prohibition of Insider Trading regulations to include a clause to reward whistle-blowers.

Source: TH