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In an effort to attract more foreign funds into the Indian market and send a positive signal to market participants, a SEBI panel has recommended waiving the requirement for FIIs to directly register with the market regulator.
It has also proposed simplifying the KYC (know-your-client) norms for certain categories of foreign investors and merging several foreign investor categories into one.
According to the recommendations, FIIs and sub-accounts would now be able to register themselves and transact through Designated Depositary Participants whose qualification would be prescribed by the market regulator.
The panel also wants the merger of existing FIIs, sub-accounts and qualified foreign investors into a new investor-class called foreign portfolio investor (FPI).
In addition, the report also states that KYC norms for FIIs would be determined by the category of risk they fall under. For this , the report has suggested creation of three categories — low risk, moderate risk and high risk. Low risk would include the government and government-related entities while moderate risk would be regulated entities such as banks, asset management companies, mutual funds, investment trusts, insurance and re-insurance companies, university funds and pension funds. High risk would comprise all other FPIs not eligible to be included in the other two categories.
According to the report, KYC requirements of submitting personal identification documents such as copy of passport, photograph of the designated officials of FPIs would be waived for the first two categories. SEBI would separately prescribe the documentation needed for the three categories.
In addition, the Committee has recommended disallowing the high-risk category to issue offshore derivative instruments and participatory notes.
According to market participants, the recommendations of liberalising their entry may not have an immediate impact on the present sentiment where FIIs want to pull out.
According to Suresh Swamy, Executive Director, PwC India: “By combining FII and QFI regime, SEBI has taken the first step in its journey to simplify the regulatory maze that investors face while investing in India. Delegating registration to Designated Depository Participants (DDP) and simplifying the KYC documentation will ease foreign investor entry into India. Foreign investors will look forward to quick implementation of these recommendations.”
manisha.jha@thehindu.co.in
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