Key amendments to the SEBI (FPIs) Regulations, 2019
SEBI, vide notification dated May 31, 2024, amended the principal regulations to provide flexibility to FPIs in dealing with securities after expiry of registration, payment of registration fee and relax the timelines for disclosure of material changes/events. These amendments are incorporated in the Master Circular for FPI, Designated Depository Participants ("DDPs") and eligible foreign investors dated May 30, 2024 ("FPI Master Circular"), vide circular dated June 5, 2024.
The key amendments are as follows:
- Payment of registration fee:
An FPI is required to pay the prescribed registration fees, for every block of 3 (three) years, before the beginning of such block. However, if the FPI pays the registration fees along with the late fee within a period of 30 (thirty) days from the date of expiry of the preceding block, it will be deemed to have paid the registration fee in a complaint manner.
- Dealing in securities post expiry of
registration:
- an FPI, whose certificate of registration is not valid as on June 3, 2024, and is holding securities or derivatives in India, is allowed to sell such securities or wind up their open position in derivatives in India within 360 (three hundred and sixty) days from June 3, 2024;
- if an FPI has not paid the registration fees and the late fees, as applicable, and continues to hold securities or derivatives in India, then it is permitted to sell the securities or wind up their open position in derivatives in India within 360 (three hundred and sixty) days from the date of expiry of 30 (thirty) days (as referred in Para (a) above) under prescribed conditions; and
- an FPI whose certificate of registration is not valid and who has not sold off the securities or wound up their open position in derivatives in India within the prescribed timelines will be deemed to have written off the securities.
- Timelines for disclosure of material
changes/events:
The procedure for disclosing certain material changes/events is modified. Earlier, an FPI had to, within 7 (seven) working days, inform SEBI and/or the DDP in case:- any previously submitted information was found to be false or misleading in any material respect;
- of a material change in the information previously furnished by them, including any direct or indirect change in its structure or ownership or control or investor group; or
- of any penalty, pending litigation or proceedings, findings of inspections or investigations for which action may have been taken or is in the process of being taken by an overseas regulator against it.
Further, pursuant to the SEBI (FPIs) Regulations, 2019, SEBI vide circular dated June 5, 2024, amended the FPI Master Circular. Consequently, in the event of the occurrence of the material changes/events mentioned above, the FPI is required to inform SEBI/DDP in writing, in the following manner:
- 'Type I' material changes, which include critical material changes that render the FPI ineligible for registration, require FPI to seek fresh registration, render FPI ineligible to make fresh purchase of securities or impact any privileges or exemptions granted to the FPI, are required to be notified within 7 (seven) working days of the occurrence of the change and the supporting documents must be provided within 30 (thirty) days of such change; and
- 'Type II' material changes, which include any material changes other than those considered as 'Type I' material changes, are required to be notified and supporting documents must be provided within 30 (thirty) days of such change.
SEBI, vide notification dated June 26, 2024, amended the principal regulations to, inter alia, provide flexibility to Non-Resident Indians ("NRIs"), Overseas Citizens of India ("OCIs") and Resident Indian ("RIIs") of having contribution in the corpus of FPI. These amendments have been incorporated in the FPI Master Circular, vide circular dated June 27, 2024. NRIs or OCIs or RIIs may be constituents of the applicant subject to the following conditions:
- the contribution of a single NRI or OCI or RII must be below 25% of the total contribution in the corpus of the applicant;
- the aggregate contribution of NRIs, OCIs and RIIs in the corpus of the applicant must be below 50% of the total contribution in the corpus of the applicant. However, this does not apply to an applicant regulated by the International Financial Services Centers Authority ("IFSCA") and based in International Financial Services Centers ("IFSCs") in India. Accordingly, NRI, OCIs and RIIs can have up to 100% aggregate contribution in the corpus of an FPI based in IFSCs in India regulated by IFSCA subject to the conditions stipulated in the FPI Master Circular;
- the contribution of RIIs must be made through the liberalised remittance scheme notified by the Reserve Bank of India ("RBI") and must be in global funds whose Indian exposure is less than 50%; and
- the NRIs, OCIs and RIIs must not be in control of the applicant.
Limits for investment in debt and sale of credit default swaps by FPIs
The RBI vide notification dated April 26, 2024, introduced the following investment limits for the financial year 2024-25:
- the limits for FPI investment in government securities ("G-Secs"), State G-Secs and corporate bonds remain unchanged at 6%, 2%, and 15%, respectively, of the outstanding stocks of securities;
- all investments by eligible investors in the 'specified securities' are reckoned under the fully accessible route;
- the allocation of incremental changes in the G-Secs limit (in absolute terms) over the 2 (two) sub-categories – 'general' and 'long-term' – is retained at 50:50; and
- the aggregate limit of the notional amount of credit default swaps sold by FPIs is 5% of the outstanding stock of corporate bonds.
Amendment to circular for mandating additional disclosures by FPIs
SEBI, vide notification dated March 20, 2024, amended the criteria listed under Para 8 of the circular dated August 24, 2023 ("FPI Circular") and prescribed that an FPI having more than 50% of its Indian equity Asset Under Management ("AUM") in a corporate group is not required to make the additional disclosures as specified in the FPI Circular, subject to compliance with all of the following conditions:
- the apex company of such corporate group has no identified promoter;
- FPI holds not more than 50% of its Indian equity AUM in the corporate group, after disregarding its holding in the apex company (with no identified promoter); and
- the composite holdings of all such FPIs (that meet the 50% concentration criteria excluding FPIs which are either exempted or have disclosed) in the apex company is less than 3% of the total equity share capital of the apex company.
Custodians and depositories must track the utilisation of the 3% limit for apex companies, without an identified promoter, at the end of each day. When the 3% limit is met or breached, depositories must make this information public before the start of trading on the next day. Thereafter, for any prospective investment in the apex company by FPIs, that meet the 50% concentration criteria in the corporate group, the FPIs must either realign their investments below the 50% threshold within 10 (ten) trading days or make additional disclosures prescribed in the FPI Circular.
Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) (Amendment) Regulations, 2024
amended the principal regulations to insert Schedule XI dealing with the provisions on mode of payment in case of purchase or subscription of equity shares of companies incorporated in India on international exchanges scheme by a permissible holder. Further, with respect to the reporting requirements for any investment in India by a person resident outside India, while filing Form LEC(FII), the following requirements have been included:
- the Authorised Dealer Category-I banks must report to RBI, in Form LEC (FII), the purchase / transfer of equity instruments by FPIs on the stock exchanges in India; and
- the investee Indian company, through an Authorised Dealer Category-I bank, must report to RBI, in Form LEC (FII), the purchase/subscription of equity shares (where such purchase/ subscription is classified as FPI under the rules) by permissible holder, other than transfers between permissible holders, on an international exchange.
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