The Securities and Exchange Board of India (SEBI) issued a circular in May providing guidelines for the registration of foreign portfolio investors (FPIs). Subsequently, the SEBI (Foreign Portfolio Investors) Regulations, 2019, were and then . This extends flexibility to FPIs to renew their registration and deal with their securities. On 5 June 2024, another was released that detailed the flexibility framework.
Registration
FPIs must now reactivate their registration within 30 days from the date of expiry and failing to do so shall incur late fees. Registrations are to be renewed every three years. A late fee, of USD50 per day for category I and USD5 per day for category II must be paid. When a registration has not been renewed and the FPI holds securities or derivatives in India, they have 180 days from the expiry of the last date of the late-fee payment to sell their securities or wind up their open position in derivatives. An FPI that does not abide by this shall be deemed to have written off their securities.
The applicable know-your-customer (KYC), anti-money laundering and countering the financing of terrorism regulations shall apply for reactivation as well as any remittance of sale proceeds where the FPI does not renew the registration. The registration payment and late fees (if any) must be paid to designated depository participants (DDP) who are required to send regular reminders to their FPIs well in advance of their registration’s expiry.
Reclassification
If any change in reclassification occurs, the FPI must inform their DDP, which may require additional KYC documents. Until such documents are verified, fresh purchases are not allowed. However, previously bought securities can be sold till expiry of the existing registration or 180 days from the notification of change, whichever is later.
Jurisdiction
As per the new rules and subsequent circulars, FPIs cannot be from a non-compliant jurisdiction. A non-compliant jurisdiction is one which ceases to be a member of the International Organisation of Securities Commissions, or the bilateral memorandum of understanding with the SEBI, or the Bureau of Indian Standards. A jurisdiction listed on the Financial Action Task Force’s public statement as a “high risk” and “non-cooperative” jurisdiction shall also be considered non-compliant.
If the FPI is from a non-compliant jurisdiction, it cannot make fresh purchases. However, the FPI is allowed to sell their securities or continue to hold those already purchased until expiry of the existing registration or 180 days from the date of change in jurisdiction status, whichever is later. The DDP is to inform the SEBI of such FPIs.
Where the FPI or its underlying investors that contribute 25% or more to the FPI have been identified on the UN Security Council sanctions list, the custodian, or DDP, shall not allow the FPI to make any further purchases or sales. The custodian is also required to notify the SEBI of such instances within two working days.
