Sebi levels playing field: FVCIs subject to same governance norms as FPIs
Source: Business Standard
The Securities and Exchange Board of India (Sebi) has notified norms governing Foreign Venture Capital Investors (FVCIs), effectively bringing them at par with those for Foreign Portfolio Investors (FPIs). The amendments make a comprehensive revamp of the registration and governance framework for FVCIs, ensuring greater parity.
Under the new norms notified on September 5, FVCIs will have to delegate the registration and governance process to designated depository participants (DDPs), in line with that for FPIs.
Further, they will now have to provide details of the beneficial ownership under the Prevention of Money Laundering Act (PMLA).
The changes notified pertain to registration, eligibility criteria, application requirements, rationalisation of the cost of registration, and the introduction of a renewal fee. Till now, the registration process and due diligence were directly done by Sebi, while now the DDPs are being entrusted with it.
The changes will be made effective from January 1, 2025.
“Since the new requirements are yet to come into force coupled with the fact that the consultative process started more than a year ago, this is expected to provide a sufficient glide path for stakeholders (the DDPs as well as FVCIs (new and existing)) to align themselves with the regulatory expectations,” said Gazal Rawal, partner, Cyril Amarchand Mangaldas.
She added that while this may increase the compliance burden on DDPs amidst a slew of regulatory changes, the new norms will enhance governance and transparency.
“Additionally, the application process is expected to be further streamlined in due course, whereby, similar to FPIs, the registration, allotment of PAN, and KYC for opening of bank and demat accounts for the FVCIs will be done through a common form,” said Rawal.
Legal experts believe that the changes are an attempt to replicate the success Sebi has received by delegating the responsibilities to DDPs in the case of FPIs.
“Concepts such as intimation to the DDP in case of material changes in information, renewal of registration, and the imposition of late fees for renewal have been introduced for FVCIs. This move aligns with Sebi’s broader efforts to reduce its direct involvement in the day-to-day operations of intermediaries, and to focus more on policymaking and regulatory oversight for these entities,” said Ritul Sarraf, member, Financial Services and Regulatory Practice at Nishith Desai Associates.
“Interestingly, the Press Note 3 restrictions applicable in the case of foreign direct investment from land-bordering countries and the additional disclosure requirements applicable to FPIs from such countries in case of breach of certain investment limits don’t seem to apply to FVCIs,” she added.
In FY24, 28 new FVCIs were registered, taking the total number to 279 as of March 2024. However, 18 registrations were cancelled in the same financial year. The total investments by FVCIs in the Indian market increased 12 per cent year-on-year to Rs 53,922 crore—of which the highest allocation is towards information technology (IT).
First Published: Sep 09 2024 | 7:39 PM IST
