Introduction
The Securities and Exchange Board of India (SEBI) has issued a circular, SEBI/HO/AFD/AFD-POD-2/P/CIR/2024/89 dated June 27, 2024, addressing the participation of Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and Resident Indian (RI) individuals in Foreign Portfolio Investors (FPIs) based in International Financial Services Centres (IFSCs) in India. This circular includes significant amendments to the SEBI (Foreign Portfolio Investors) Regulations, 2019, aimed at increasing the flexibility and attractiveness of investments in IFSCs regulated by the International Financial Services Centres Authority (IFSCA). These regulatory changes are intended to streamline the participation process and strengthen India's position as a preferred destination for global investors.
Amendments to FPI Regulations
SEBI has amended the SEBI (Foreign Portfolio Investors) Regulations, 2019, through the SEBI (Foreign Portfolio Investors) Second Amendment Regulations, 2024, to allow FPIs in IFSCs to have up to 100% aggregate contribution from NRIs, OCIs, and RIs in their corpus. This amendment aims to enhance flexibility and attract more investments into IFSCs regulated by the International Financial Services Centres Authority (IFSCA).
The amendments to the FPI Regulations necessitate modifications to the FPI Master Circular (SEBI/HO/AFD/AFD-PoD2/P/CIR/P/2024/70 dated May 30, 2024).
Key changes include:
Declaration Requirement: Applicants must submit a declaration stating their intent to have NRIs, OCIs, and RIs contribute 50% or more to their corpus. Existing FPIs must comply within six months.
Documentation: Submission of PAN cards or appropriate declarations and identity proofs for all NRI/OCI/RI constituents to the Designated Depository Participants (DDPs) is mandatory.
Exemptions for Funds in IFSCs: Funds setup in IFSCs as per IFSCA regulations are exempted from certain documentation requirements if they meet specific conditions related to pooling, pari-passu rights, diversification, and independence of fund management.
Compliance and Enforcement
SEBI emphasizes compliance with the amended regulations, detailing penalties for breaches and outlining immediate rectification measures for active breaches. The circular reinforces SEBI's commitment to market integrity and investor protection under its regulatory framework.
Conclusion
The amendments introduced by SEBI aim to streamline and enhance the regulatory framework governing FPIs in IFSCs, fostering a conducive environment for foreign investments while ensuring robust compliance with investor protection norms. These changes are expected to strengthen India's position as a preferred destination for global investors operating through IFSCs.
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