Foreign Portfolio Investment Registration with SEBI

Overview of Foreign Portfolio Investment 

Foreign Portfolio Investment is generally done by non-resident citizens and foreign investors in the Indian Financial Market. These investments are in securities like government bonds, stocks, corporate bonds, infrastructure securities, convertible securities. The foreign citizens making such investments are referred to by the term “Foreign Portfolio Investors” or FPIs. Such investments have been regulated under the norms and regulations of SEBI 2014 regulations for Foreign Portfolio Investors. These regulations have made it mandatory for foreign investors to get registered with SEBI before investing their capital under the umbrella of Foreign Portfolio Investment.  

There are three categories decided by SEBI under which any investor can get himself registered according to the speciality of the category. 

Category 1: In this category, all the foreign investors who are related to central banks of other countries, sovereign wealth funds, or government agencies are included. Investors who find themselves from any of the above bodies are required to get registered under this category. 

Category 2: This category includes investors from regulated organisations like Asset Management Companies, Banks, Investment Managers, etc. this also includes broad-based funds which are regulated like investment trusts, mutual funds, etc. it might even include managers who maintain the banks, portfolios, pension funds, or any other such funds.

Category 3:  This category includes all the foreign investors who do not belong to either category 1 or 2. This might include individual investors, HNI, bonds held by families, bonds held by corporate, etc. 

Compliance Requirements for FPIs

SEBI has set compliance norms for all kinds of Foreign investment companies/individuals willing to invest in India. An FPI must comply with the laws set by the board and thus can only operate in the market after taking the registration and license from the board. The FPIs are also required to open bank accounts in their name and also have to open depository accounts for securities. 

The FPI investors belonging to category 2 or 3 are required to furnish information about the executives of the company. The information is provided for identifying the individual as the FPI’s Beneficial Owner (BO). The local custodian must be given information regarding the BO. 

FPIs can invest in securities that can be transferred like preference shares, derivatives of mutual funds, bonds, etc. although the securities that an FPI can invest in must be registered in the Indian capital market only. For investment in equity security, An FPI can only invest in listed equities of the Indian market. The investment in equity made by a pool of FPI must not exceed 10%. In the case of a private sector bank, the said limit is 5%. For investments of more than 10% in banks will be treated as Foreign Direct Investment (FDI) and will come under the compliance regime and authority of RBI. 

Eligibility Criteria to Get FPI Registration from SEBI

• The applicant seeking FPI registration from SEBI should be a non-resident in India. 
• The Applicant’s countries must meet the following criterions for registration:

1. Its securities market regulator must either be a part of the MOU with SEBI or a signatory of the International Organization of Securities Commissions Multilateral Memorandum of Understanding (MoU). 
2. The resident country must not be identified in the public statement of the Financial Action Task Force with issues related to money laundering or terrorism. 
3. If the applicant is a bank, then the resident country’s central bank must be a member of the Bank for International Settlement. 

• The applicant must be authorised legally by the home country’s administration to invest outside the country or his place of business. This should also be mentioned in the Article of Association and memorandum of understanding of the company. 

Procedure for Foreign Portfolio Registration

• The applicant must apply to the designated depository participant as per the norms mentioned. They should apply with Form A and the prescribed fee and the relevant documents if they are eligible. 
• Step -3 After receiving the registration application, SEBI or the designated depository participant if required, inform the applicant to furnish such further information/clarification or even ask the applicant to appear before the board or designated depository participant. They may also reject the application form, if not satisfied with the information furnished in it or if they find the applicant ineligible according to the rules. Before rejecting any application, a chance of presenting their case is given to the applicant.
• If the designated depository participant is satisfied with the application file, then they will grant a certificate of registration in Form B of the First Schedule, after collecting the prescribed fees and remit an equivalent to the board. They eliminate all the applications within thirty days of receipt or, after receiving any further document or information, whichever is later.

Once the certificate for registration has been granted, under the board’s regulations, it will remain permanently valid unless it has been suspended or cancelled by the board or unless it is suspended by the applicant itself.