Foreign portfolio investors worry over SEBI’s April 10 circular on KYC norms

In the circular, SEBI had clarified the Know Your Client (“KYC”) requirements for FPIs

Published: Sep 3, 2018
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Moneycontrol News

Citing a threat to USD 75-billion worth investments by foreign portfolio investors (FPIs) into India, an FPI body has sought SEBI's immediate intervention over its April 10 circular. The circular had asked FPIs to comply with KYC norms by December 31, 2018.

The letter written by AMRI, an organisation that represents the FPI community, says that foreign portfolio investors' (FPIs) investment is taking a hit due to the circular. Moneycontrol has a copy of the letter.

In the circular, SEBI had clarified the Know Your Client (KYC) requirements for FPIs.

"The problem is that while the circular was issued to enhance KYC norms, it has instead resulted in restrictions on investments and in some cases, it has even placed a blanket ban on investments through certain FPIs," said the letter.

FPIs have invested more than USD 450 billion in India. Out of this, USD 75 billion is managed by Overseas Citizens of India (OCIs), Persons of Indian Origin (PIOs), Non-Resident Indians (NRIs) and Resident Institutions & Individuals (RIs).

According to the SEBI (Foreign Portfolio Investors) Regulations, 2014 (FPI Regulations), NRIs are not allowed to register as FPIs. They can only act as investment managers for other FPIs.

“An immediate impact of the circular is that from December 31, 2018 ( the date set by SEBI's Circular dated August 21, 2018 for existing FPIs to ensure compliance with the stipulations of the circular), the said USD 75 billion investment will be disqualified from investing into India and will have to be withdrawn and liquidated within a short time frame, thereby adversely affecting the Indian Markets and Indian currency,” further said the letter.

SEBI has responsed to the letter, saying that "It is preposterous and highly irresponsible to claim that 75 billion dollars of FPI investment will move out of the country because of SEBI's circular issued in April 2018."

"If the funds are not taken into account, the immediate impact of the circular is USD 75 billion of FPI capital would be liquidated," Nandita Agarwal Parker, president of Asset Managers Roundtable of India (AMRI), told CNBC-TV18.

Parker urged SEBI to withdraw the April 10 circular.

AMRI has further asked the regulator and the government to give clarity on specific questions and has requested consultation with its members.

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