Consultation paper for streamlining regulatory framework for registration of Foreign Venture Capital Investors

SEBI has issued Consultation paper on 18 May, 2023 for streamlining regulatory framework for registration of Foreign Venture Capital Investors (FVCIs) to seek comments and inputs from stakeholders and members of public on streamlining the regulatory framework for registration of Foreign Venture Capital Investors (‘FVCIs’) under Securities and Exchange Board of India (Foreign Venture Capital Investor) Regulations, 2000 (‘FVCI Regulations’).

The eligibility criteria for registration as FVCI is proposed to be revised as under:

A designated depository participant shall consider an application for grant of certificate of registration as a foreign venture capital investor if the applicant satisfies all of the following conditions namely: –

1. The applicant is any entity incorporated or established outside India or in IFSC;(b)Non-resident Indians or Overseas Citizens of India or Resident Indian Individuals may be constituents of the applicant provided that:
2. The contribution of a single NRI or OCI or RI shall be below twenty-five percent of the total contribution in the corpus of the applicant;
3. The aggregate contribution of NRIs, OCIs and RIs shall be below fifty percent of the total contribution in the corpus of the applicant; and
4. The NRIs, OCIs and RIs shall not be in control of the applicant.
5. Provided that resident Indian other than individuals, may also be constituents of the applicant, subject to the following conditions, namely –(i) such resident Indian, other than individuals, is an eligible fund manager of the applicant, as provided under sub-section (4) of section 9A of the Income Tax Act, 1961 (43 of 1961); and (ii)the applicant is an eligible investment fund as provided under sub-section (3) of section 9A of the Income Tax Act, 1961 (43 of 1961) which has been granted approval under the Income Tax Rules, 1962.
6. Provided further that resident Indian, other than individuals, may also be constituents of the applicant, subject to the following conditions, namely –(i)the applicant is an Alternative Investment Fund setup in the International Financial Services Centers and regulated by the International Financial Services Centers Authority; (ii)such resident Indian, other than individuals, is a Sponsor or Manager of the applicant; and(iii)the contribution of such resident Indian, other than individuals, shall be up to-(a)2.5% of the corpus of the applicant or US $ 7,50,000 (whichever is lower), in case the applicant is a Category I or Category II Alternative Investment Fund; or (b)5% of the corpus of the applicant or US $ 1.5 million (whichever is lower), in case the applicant is a Category III Alternative Investment Fund;(c)The applicant is a resident of the country whose securities market regulator is a signatory to the International Organization of Securities Commission’s Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to a bilateral Memorandum of Understanding with SEBI.
7. Provided that an applicant being Government or Government related investor shall be considered as eligible for registration, if such applicant is a resident in the country as may be approved by the Government of India; (d) The applicant being a bank is a resident of a country whose central bank is a member of Bank for International Settlements; (e) Provided that a central bank applicant need not be a member of Bank for International Settlements; (f) The applicant or its underlying investors contributing twenty-five percent or more in the corpus of the applicant or identified on the basis of control, shall not be the person(s) mentioned in the Sanctions List notified from time to time by the United Nations Security Council and is not a resident in the country identified in the public statement of Financial Action Task Force as– (i) a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or (ii) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies; (g) the applicant is authorized in its incorporation documents or through a resolution to carry on activity as a foreign venture capital investor; (h) the applicant has not been refused a certificate by the Board; and (i)the applicant is a fit and proper person based on the criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.”