REGIME PRIOR TO CIRCULAR DATED 10.04.2018

CONDITIONS IMPOSED BY CIRCULAR DATED 10.04.2018

RECOMMENDATIONS

Eligibility conditions where NRIs/OCIs/RIs are constituents of FPIs

Entities owned by Non-Resident Indians (NRIs)/ Resident Indians (RIs) could be registered as non-investing FPIs for the purpose of acting as an investment manager for other FPIs (i.e. investing FPIs)

NRIs, OCIs and RIs cannot be Beneficial Owners of investing FPIs in view of the reason that since NRIs and RIs are prohibited from becoming FPIs in accordance with Regulations 4(a) and 4(e) of FPI Regulations, the same should also not be permitted indirectly by becoming BOs of FPIs.

NRIs/OCIs/RIs based on which they may be allowed to be constituents of FPIs such as:

1. Single NRI/ OCI/ RI holding is below 25% of the Assets Under Management (AUM) in the FPI
2. Aggregate NRI/ OCI/ RI holdings is below 50% of Assets Under Management (AUM) in the FPI
3. NRI/ OCI/ RI should not be in Control of an FPI. However, there should be no restriction on NRIs / OCIs / RIs investment managers to be in control of the FPI provided any of the following conditions is satisfied:
• The investment manager entity of the FPI is appropriately regulated in its home jurisdiction and registers itself with SEBI as a non-investing FPI, or
• The investment manager is incorporated or setup under Indian laws and appropriately registered with SEBI, or
• Where such FPIs are ‘offshore funds’ as approved by SEB.

PIOs not to be subject to restrictions imposed by the Circular dated 10.04.2018

Persons of Indian Origin (PIOs) have been subjected to the same restrictions as applicable to NRIs.

Imposes restrictions only on NRIs, OCIs and RIs, there is no specific reference to the Persons of Indian Origin (PIOs).

Restrictions may be imposed upon NRIs and OCIs only and it may be clarified that PIOs (without OCI status) should be excluded from the applicability of the restrictions under the Circular.

Clubbing of investment limit of FPIs having Common ownership or control

As per Operational Guidelines for Designated Depository Participants, Clubbing of investment limit for FPIs was on the basis of common ownership or control of more than 50 percent.

Clubbing of investment limit for FPIs on the basis of Beneficial Ownership (as per PMLA Rules) of FPIs.

1. Clubbing of investment limit for FPIs may be on the basis of common ownership OR based on common control.
2. Clubbing of investment limit of FPIs having common control may not be applicable in any of the following cases where:
• FPIs are appropriately regulated public retail funds or
•  FPIs are appropriately regulated public retail funds majority owned by public retail fund on look through basis or
•  FPIs are public retail funds and investment managers (IMs) of such FPIs are appropriately regulated.
3. Clubbing of investment limit of FPIs having common control identified on the basis of “SMO” may not be made applicable.

Need to bring uniformity of requirement across all Category I FPIs

Category I FPIs exempted from submitting beneficial ownership list, proof of identify etc.,

It is provided that if any FPI is coming from a “high risk jurisdiction”, the intermediary (DDP) is required to apply a lower materiality threshold of 10% for identification of BO of such FPI and ensure that KYC documentation as applicable for category III FPIs is obtained from such FPIs

Category I FPIs are either government/government related entities and are perceived to be low risk entities and should be exempt from providing additional KYC documentation requirements as applicable to Category III FPIs & declaration related to issuance of bearer shares considering that majority shareholding of such Category I FPIs is with the Government.

Identification of BO of listed entities

Rule 9(3)(f) of the PMLA Rules provides that “where the client or the owner of the controlling interest is a company listed on a stock exchange, or is a subsidiary of such a company, it is not necessary to identify and verify the identity of any shareholder or beneficial owner of such companies”.

All FPIs to identify and verify its BO and no exemption from meeting such requirement if the FPI or its holding company or controlling interest owner is a company listed on a stock exchange.

SEBI may specifically clarify that exemption under Rule 9(3)(f) of the PMLA Rules is only available to an FPI or its BO which is a company listed on a stock exchange in specific jurisdictions and such stock exchange is recognized and supervised by its home regulators.

Impact of FPIs not meeting the stipulations of KYC circular

1. If an FPI fails to comply with the applicable KYC requirements by the given deadline, the concerned Custodian shall not allow such FPI to make fresh purchases till the time KYC documentary requirements, as applicable, are complied with. Such FPI shall be allowed to disinvest its holdings within a period of 180 days from the expiry of the timeline permitted by SEBI.
2. In case FPI remains non-compliant with this requirement even after 180 days from the said deadline, its FPI registration will no longer be valid and it would need to disinvest its holdings immediately.