HR Khan panel moots changes to FPI rules

• The Securities and Exchange Board of India (SEBI) on May 24, 2019 released the report of the working group formed under the chairmanship of former RBI deputy governor HR Khan in 2018.
• As part of its attempts to streamline the regulations to encourage foreign inflows in the Indian market, the committee has proposed fast track on-boarding procedure for such investors, apart from a simplified registration process.
• Few of the key recommendations proposed by the working group are as follows:
  1. Ease of access– fast track on-boarding process for select category II FPIs, review of broad based condition for appropriately regulated entities, pension fund to be considered for category I FPI registration, deemed broad based status for insurance/ re-insurance entities, simplified registration for multiple investment manager (MIM) structures, entities established in the international financial services centre(IFSC) be deemed to have met the jurisdiction criteria for FPIs, etc.
  2. Simplification of documentation– removal of ‘opaque structure” definition, simplified KYC documentation for category III FPI, KYC reliance on same group regulated entity of custodian for non-PAN documents, etc.
  3. Review of Investment restriction– Liberalized investment cap, harmonization between investment restrictions in FPI regulations and FEMA 20(R), reclassification of investment from FPI to FDI, permitting FPIs for off-market transactions, review of restriction on sovereign wealth funds for investment in corporate debt securities etc.
  4. Other aspects– strengthening of clubbing restrictions, alignment between FPI and alternative investment fund (AIF) routes, strengthening of offshore derivative instrument (ODI) framework, etc

Background

• SEBI had constituted a working group on March 26, 2018 under the Chairmanship of Shri H.R. Khan, Deputy Governor (Retired), Reserve Bank of India with the following terms of reference:-

  1. To advise SEBI on redrafting the SEBI (Foreign Portfolio Investors) Regulations, 2014 for simplification.
  2. To advise SEBI on incorporating the provisions contained in the circulars, frequently asked questions (FAQs) and operational guidelines issued by SEBI concerning Foreign Portfolio Investors (FPIs), in the regulations itself, to the extent possible.
  3. To advise on any other issue relevant to FPIs.