On May 31, 2024, the Securities and Exchange Board of India (SEBI) announced significant amendments to the Foreign Portfolio Investors (FPI) Regulations, 2019. This move, encapsulated in the SEBI (Foreign Portfolio Investors) (Amendment) Regulations, 2024, aims to refine the regulatory landscape for FPIs operating in India. These changes are geared towards enhancing compliance, simplifying regulatory procedures, and ensuring a more streamlined process for foreign investors.
Key Highlights of the Amendment
Extension for Securities Disposal
One of the pivotal changes in the amendment pertains to the handling of securities by FPIs whose registration certificates have lapsed. According to the revised regulation 7, sub-regulation (5), FPIs whose certificates are invalid on the commencement date of this amendment will be granted a period of 360 days to sell their securities or wind up their derivative positions in India. This extended timeline provides a more pragmatic window for FPIs to comply with regulatory requirements without disrupting market stability.
Registration Fee Payment Structure
The amendment introduces a new framework for the payment of registration fees. Under the newly inserted sub-regulation (6), FPIs are required to pay registration fees every three years. This payment must be made before the beginning of each three-year block. However, recognizing potential delays, SEBI has allowed FPIs to pay the registration fees along with a late fee within 30 days of the block’s commencement. If an FPI fails to comply within this period, they will be permitted to sell their securities or wind up derivative positions within 360 days post the 30-day grace period.
Compliance and Enforcement
The new sub-regulation (7) clarifies that the additional periods granted under sub-regulations (5) and (6) do not exempt FPIs from any enforcement actions that SEBI might initiate. This ensures that while FPIs have the time to comply, they are not immune from regulatory scrutiny and potential penalties for non-compliance.
Write-off Provisions
Perhaps one of the more stringent measures introduced is detailed in sub-regulation (8). FPIs whose registration certificates have expired and who have not disposed of their securities or wound up their derivatives positions within the stipulated period will be deemed to have written off their securities. The specific manner of this write-off will be dictated by SEBI, ensuring that non-compliant FPIs face clear consequences for inaction.
Implications for Foreign Investors
Flexibility with Accountability
The amendments reflect SEBI’s balanced approach towards regulation—providing flexibility to FPIs while simultaneously holding them accountable. The extended timelines for compliance reflect an understanding of the practical challenges FPIs may face, but the strict enforcement measures underscore the importance of adherence to regulatory norms.
Simplified Fee Structure
The revised fee payment structure simplifies the process, reducing administrative burdens and ensuring that FPIs remain in good standing with SEBI more efficiently. The inclusion of a late fee option further demonstrates a practical approach to regulatory compliance.
Market Stability
By allowing FPIs a 360-day period to dispose of their securities or derivatives, SEBI aims to maintain market stability. Sudden, forced sales could lead to market disruptions, and this amendment seeks to mitigate such risks by providing a structured timeline for compliance.
