Q81.
In case of conversion of existing FII having MIM structure and its proprietary SAs, whether such FII needs to surrender its registration if all of its proprietary SAs are getting converted as FPI?
The erstwhile FII, if it so desires, can continue as FPI subject to payment of applicable fees, even after all its proprietary SAs have got converted as FPIs.
Q82.
What is the criterion to be followed for determining the appropriate category of FPI in case of conversion of a Proprietary SA of an FII, where the FII is regulated but the SA is not?
Proprietary SAs of the FII shall be categorized based on the beneficial ownership and may be placed in the same category as its FII.
Q83.
In case of MIM structures in the FPI regime, should the parent fund first seek FPI registration and subsequently seek FPI registrations for various pools of funds (“pools”) managed by different Investment Managers? Or alternatively, can pools directly seek FPI registrations?
In the FPI regime, a parent fund and its pools would be treated as independent FPIs. Therefore, a pool can be registered as an FPI without first registering the parent fund as an FPI.
Q84.
There are FII/SAs which are registered under the MIM structure. Some of these FII/SAs are due for renewal in another year’s time and in the interim they intend to seek fresh FPI registration for pools. Whether such FII/SAs in the MIM structure would have to mandatorily convert to FPI prior to registering new pools as FPIs?
With the commencement of FPI regime, all existing FIIs and SAs are deemed to be FPIs. Accordingly, in case a pool is being registered as FPI under the MIM structure, then the existing FII/SAs within the MIM structure are not required to convert to FPI.
Q85.
Two applicants A (Bank) and B(subsidiary of a bank) wish to convert from FII to FPI. Their respective DDPs have sought SEBI's guidance / requisite approval to process these applications.
- As per clause 2.3 in the Operational Guidelines issued vide SEBI Circular No. CIR/IMD/FIIC/02/2014 dated January 08, 2014, "In case of an applicant being a bank or its subsidiary, the respective DDP shall forward the relevant details of the applicant such as its name & address to SEBI. SEBI would in turn request RBI to provide its comments. Based on the comments received from RBI, SEBI would intimate the comments of RBI to DDP accordingly".
- It is clarified that in case of conversion of an existing FII, which is registered under bank category, to FPI also, the respective DDP shall forward the relevant details of such applicant such as its name & address to SEBI. SEBI would in turn request RBI to provide its comments. Based on the comments received from RBI, SEBI would intimate the comments of RBI to DDP accordingly.
Q86.
One of the existing SA, which is unregulated, intends to convert as a Category II FPI, on the basis of its regulated investment manager. This SA, has been managed by an FII, which is registered under the bank category. In this regard, the queries are as under:
- Can the above FII be considered under the definition of the Investment Manager, allowing the above SA to register as Category II FPI?
- If yes, then whether the above FII is required to be converted as a FPI, before converting the SA as an FPI?
- Whether the above FII registered under the bank category is still required to comply with Regulation 6(1)(d)(ii) of the SEBI ( FII) Regulation, 1995?
(i) & (ii) Regulation 5 of the Regulations inter alia provides that unregulated broad based funds may be registered as Category II FPI if investment manager of such funds is itself registered as Category II FPI. Therefore, an unregulated broad based fund currently registered as SA can convert as Category II FPI provided:
- Its investment manager is registered as Category II FPI and
- Its investment manager is appropriately regulated and permitted to carry out the activities related to investment manager under its license/registration granted by its regulator.
It is clarified that an FII is not required to convert as Category II FPI prior to the conversion its SA as the FII is deemed to be an FPI, in terms of the Regulations.
(iii) It has already been clarified in reply to Q.7 that pursuant to the implementation of FPI regime, the requirement of registering a broad based fund by non-fund entities shall no longer be applicable.
Q87.
Is the conversion fees applicable to erstwhile QFIs which are deemed to be FPIs in terms of the Regulations?
In this regard, it is clarified that as per the Regulations only FII or SAs are required to pay the conversion fees of USD 1000 on or before the expiry of their registration. QFIs are not required to pay any conversion fees in terms of the Regulations. They would only be required to register themselves as FPI Category III, wherever applicable.
Q88.
An FPI wishes to open depository account with both NSDL and CDSL due to non availability of certain scrip in demat form in both the depositories. Can such an FPI open more than one demat accounts? If yes, then can it open with the same DP or different DP?
It is clarified that an FPI is allowed to open only one demat account per depository through the same DP.
Q89.
Kuwait does not appear in the IOSCO list nor does it reflect in the Bilateral MoU list. Please confirm whether applicants from Kuwait are eligible to seek registration as FPI?
FPI applicant has to satisfy the country requirement as specified in Regulations 4(b) and 4(c) of the Regulations. As per the latest information available, Kuwait is not one of the eligible jurisdictions for the FPI.
An updated list of securities market regulators with whom SEBI has signed bilateral MoUs can be accessed at the following web link:
http://www.sebi.gov.in/cms/sebi_data/internationalAffr/IA_BilMoU.html
Q90.
In case of an FPI applicant, belonging to bank category, is it required to be regulated by a Central Bank in its jurisdiction which is a BIS member or can it be regulated by another regulator in its jurisdiction, which is not a BIS member?
- Regulation 4 of the Regulations stipulates the eligibility criteria of FPI. As per Regulation 4 (c), the applicant, being a bank, is required to be resident in a country, whose Central bank is a Member of BIS.
- The Regulation 5 of the Regulations deals with the categorization of FPI. As per the Explanation 1 to Regulation 5 of the Regulations, an applicant seeking registration as an FPI shall be considered to be "appropriately regulated" if it is regulated or supervised by the securities market regulator or the banking regulator of the concerned foreign jurisdiction, in the same capacity in which it proposes to make investments in India.
- While Regulation 4 primarily determines the country from where FPI applicants are eligible, Regulation 5 inter alia deals with the criteria for determining the appropriate regulated status of the applicant.
- In some jurisdictions, although the Central bank is a member of BIS, it may not regulate Banks. Instead, there is either a unified regulator for financial sector (including securities market and banks) or there is a separate regulator for banking regulator, which may not be member of BIS.
- Accordingly, it is clarified that for the purpose of Regulation 5, an FPI applicant under bank category would be deemed to be appropriately regulated if it is regulated by the unified financial sector regulator in its jurisdiction or by the specific banking sector regulator in its jurisdiction provided such applicant satisfies eligibility conditions specified under Regulation 4. SEBI has followed a similar approach under FII regime also.
Q91.
Can an offshore company, whose beneficial owner is a NRI/PIO register as Category III FPI?
NRI/PIO is not eligible to make investments as an FPI. Accordingly, a company which is majority owned by one or more NRI/PIOs shall not be allowed to make investments as an FPI. However, if such company is appropriately regulated it may be given registration as Category II FPI for the purpose of acting as investment manager for other FPIs. This position is the same as in FII regime where companies promoted by NRIs were registered as non investing FIIs.
Q92.
The query relates to assessing an FPI applicant with a view to ensure that it is not an opaque structure such as PCC/SPC etc in terms of FPI framework. It states that an FPI applicant, which is currently registered as a Segregated Portfolio Company (SPC) does not fulfil broad based criteria. However, it complies with the other two conditions viz. it is regulated and willing to provide information regarding its beneficial owners as and when SEBI seeks. Is such an applicant eligible to get registered as Category III FPI?
No. The applicant is required to comply with all the conditions as mentioned in 32 (1) (f) of the Regulations, SEBI Circular No. CIR/IMD/FIIC/21/ 2013 dated December 19, 2013 and other directions issued by SEBI in this regard from time to time.
Q93.
Can a Sovereign Wealth Fund (SWF) desirous of seeking FPI registration, avail services of an external agency / firm to handle its compliance related matters?
The Regulations mandates every FPI to appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines and instructions issued by the DDP. The compliance officer need not be an employee.
Q94.
The queries deal with the procedure of a name change request in case of an existing FII/SA, who is yet to get converted as FPI.
- As per SEBI Circular No. CIR/IMD/FIIC/6/2014 dated March 28, 2014, with effect from June 01, 2014, the DDPs shall accept all applications for registration, acknowledgment of fees, and miscellaneous requests.
- In case of change of name of FPI, the DDP shall process such request as per the procedure specified in the Operational Guidelines issued vide SEBI Circular No. CIR/IMD/FIIC/02/2014 dated January 08, 2014.
- Accordingly, DDP has to process such requests received from FPIs/existing FIIs or SAs as per the prescribed procedure.
- In this regard, it is clarified as follows:
- In case of change of name of an existing FII, the DDP may issue a letter to such applicant acknowledging the change of name without insisting on conversion as FPI. The DDP shall retain with it the original FII registration certificate earlier issued by SEBI to such applicant.
- In case of change of name of an existing SA, the respective DDP may issue a letter to such applicant acknowledging the change of name without insisting on conversion as FPI.
- However, in case an applicant desires to receive a fresh certificate as FPI, then such applicant shall be mandatorily required to convert as FPI. Such applicants shall be required to pay the applicable conversion fees in terms of the Regulations and no adjustment shall be permitted against any fee payments made earlier to SEBI. The original validity of registration as FII/SA will remain the same upon conversion as FPI.
Q95.
Whether an entity formed in a qualifying jurisdiction such as USA or UAE but having beneficial owners who are residents (distinct from citizens) of non-qualifying jurisdiction (For eg : Qatar or Pakistan) could qualify as a FPI ?
The Regulations require the FPI applicants to be resident of eligible jurisdictions as mentioned in Regulation 4. With regard to the eligibility of beneficial owners to invest through the FPI route, the DDP shall ensure compliance with the requirements as per PML Act, rules and regulations, FATF standards and SEBI circulars issued in this regard, from time to time.
Q96.
Whether DDP can register a company as FPI if it happens to be its associate/group company?
Yes, a DDP may register a company as FPI which is its associate/group company subject to fulfilment of eligibility criteria.
Q97.
With regard to name change, would the concerned Depository portal have a facility where a DDP can enter requests for name change? Also, whether the depository would issue standard acknowledgement upon taking record of name change?
Requests for name change would have to be entered into the concerned depositary portal. A new Registration Certificate bearing the new name shall be generated by the system.
Q98.
Prior to commencement of FPI regime, SEBI (ICDR) Regulations, 2009 considered all the FIIs and SAs as Qualified Institutional Buyers (QIBs) except those which were registered under the category of Foreign Corporate and Foreign Individual. Subsequent to notification of SEBI (FPI) Regulations, 2014, the definition of QIB has been amended in ICDR Regulations by considering only Category I and Category II FPIs as QIBs. It is requested to clarify that whether deemed FPIs who have earlier been granted SA registration under the ‘foreign corporate’ category but are currently classified as Cat II FPIs should be considered as QIBs (and therefore allowed to enjoy all investment avenues open to QIBs like subscription to IPO, anchor investment, etc)?
It is clarified that all such erstwhile SAs which are registered in the category of Foreign Corporate and/or Foreign Individuals shall continue to be considered as non QIBs under the FPI regime even though presently they are tentatively categorized as Category II FPIs.
Q99.
As per Q 49 of FAQs, in case of addition of share class, FPIs are required to seek prior approval from the DDP. For this purpose, the DDP is required to seek the prescribed declaration and undertaking (D&U) from the FPI relating to its PCC/ MCV status. It is requested to clarify that whether DDP is required to seek any additional documents from investors such as prospectus etc. and if so, what would be the nature of due diligence required from the DDP?
In addition to D&U, the DDP may also seek copy of prospectus or its equivalent document evidencing the addition of the share classes.
Q100.
If the prospectus of a fund (registered as FPI) allows for share classes such as various currencies, can such an FPI request for addition of share class for every single iteration/variant of a share-class at one time irrespective of whether it actually launches the share-class or not?
It has already been clarified in reply to Q 49 of FAQs that in case of simultaneous addition of more than one share class, which are not broad based, then an undertaking is to be obtained by the DDP that all the newly added share classes will become broad based within 15 days from the date of DDP approval letter. However, where common portfolio is maintained, the approval of launch of share class/variant shall be taken prior to its launch.
Q101.
An existing proprietary SA of an erstwhile FII now wants to start accepting investments from other investors and hence wants to apply for change in its registration category as a non-proprietary fund. Will such a SA need to necessarily convert to FPI for this purpose? In this case, the proprietary SA is a separate legal entity from the FII. Can such a SA convert to FPI under Category II or Category III (in case it doesn’t meet broad based requirement) without the need for the FII and all the other SAs to be converted as FPI?
Where a proprietary SA (now a deemed FPI) wants to accept investments from other investors, it shall inform its DDP. The DDP shall re assess the eligibility of the FPI at the time of receipt of such information from the FPI. The deemed FPI shall be required to apply for conversion for this purpose.
Q102.
It has been clarified by SEBI that proprietary SA of the FII shall be categorized based on the beneficial ownership and may be placed in the same category as its FII. It is requested to clarify on the percentage of beneficial ownership to be considered for Proprietary SA to be placed in the same category as its FII. Would all entities where the FII’s ultimate beneficial ownership (UBO) is 50% or more be eligible?
In the FII regime, a SA was considered as a proprietary fund of the FII only where the FII was 100% beneficial owner in such a fund.
Q103.
Can a DDP register proprietary accounts for the purposes of internal segregation (other than for MIM purposes)? Are there any limitations on how many such proprietary FPIs can be registered?
It has already been clarified in reply to Q6 of the FAQs that in the FII regime, wherever an entity engages Multiple Investment Managers (MIM structure) it can obtain multiple registrations with SEBI. These applicants are required to appoint the same local custodian. Further, investments made under such multiple registrations are clubbed for the purpose of investment limits. The same position shall continue in the FPI regime.
Q104.
Multilateral organizations may not have documents like the Tax Residency Certificate or Certificate of Incorporation. In such cases, what document can be obtained to evidence proof of residency?
In such a case, the DDP may obtain the equivalent constitutive document from the applicant evidencing proof of its residency.
Q105.
As per the reply to Q1 of FAQs, an FII is required to return the original certificate of registration to the DDP at the time of conversion. In case an FII has misplaced/ lost the original certificate of registration, can the DDP accept an undertaking from the FPI stating they will return the original certificate immediately if they find it in future?
In the FII regime, in case the FII was not able to submit the original certificate of registration along with cancellation/surrender request, the FII was advised to undertake to surrender the same as and when it finds the certificate. The same position shall continue in FPI regime also.
Q106.
If a fund fails to satisfy the broad based criteria within the prescribed timeframe (180 days) and get reclassified to Cat III, it is understood that such FPIs would not be eligible for any fee refund (difference between Cat III fees and Cat II fees). If, however, this fund subsequently again becomes eligible under Cat II will the applicant be required to pay the differential fees between Cat III and Cat II again since it has already paid the same upfront?
In such a case, as the FPI has already remitted the registration fees applicable to Category II at the time of its initial registration, it would not be required to pay any registration fees subsequent to its re-categorization from Category III to Category II FPI during the validity of its registration.
Q107.
There are cases where SEBI has granted conditional registration to SA prior to the commencement of FPI regime with initial period of 90 days and the deadline for the SA / share-class to meet broad based requirement falls due post 01-Jun-14. In such cases, where the client seeks extension for another 90 days whether such requests should be referred to SEBI or can the DDP grant such extension? Further, if the DDP is permitted to grant extension (total period not exceeding 180 days) then does the DDP need to report such extension to SEBI or NSDL, and if so, in what manner?
In all such cases, where the SA applicant was earlier granted conditional registration of 90 days by SEBI and such SA seeks another extension of 90 days in FPI regime, then it will be required to forward its request for the extension to SEBI through the concerned DDP for consideration.
Q108.
The FII regulations required a non-fund FII to register at least one broad based SA under it. Accordingly, SEBI in its approval letter has included a condition for certain FIIs to register broad based fund within a given timeline that fall due post 01-Jun-14. However, since the requirement of broad based SA no longer exists, request SEBI to provide a clarification that this condition need not be fulfilled by such FIIs now.
It has already been clarified in reply to Q7 and Q 86 of the FAQs that pursuant to the implementation of FPI regime, the requirement of registering a broad based fund by non-fund entities shall no longer be applicable.
Q109.
There may be some jurisdictions that have multiple categories of recognition, and may distinguish between entities that are registered vis-à-vis entities that are regulated by it. Typically both categories of recognition would be considered adequate for the purpose of ascertaining the regulated status of the applicant. It is requested to clarify the above understanding.
In the FII regime, SEBI has granted registration to certain applicants as FII, which were regulated by their concerned regulator but not registered with them only after submission of satisfactory documents by such applicants evidencing its regulatory status. The same position shall continue in FPI regime also. However, if an FPI applicant is not appropriately regulated then it may seek registration as Category III FPI.
Q110.
European Central Bank (ECB) is one of the Member Central Banks as listed in the BIS website. It is requested to clarify as to which European countries can be included/ form part of the European Central Bank for the purpose of ascertaining whether their central bank is a member of BIS.
As per the information available on the ECB website, ECB has been responsible for conducting monetary policy for the euro area. The euro area consists of the EU countries that have adopted the euro. The list of eligible countries, which have adopted the euro, is available on the ECB website. Further, the FPI applicant is required to comply with Regulation 4 (d) of the Regulations.
Q111.
In case of a multi-share class fund, whose various share-classes do not have a common portfolio or do not independently (at share class level) meet broad based requirement then such a fund would need to seek registration under Category III even if it meets broad based requirement at an overall level. It is requested to confirm that whether such fund would only be eligible for registration under Category III.
As per SEBI Circular No. CIR/IMD/FIIC/1/2010 dated April 15, 2010 an MCV structure with segregated portfolio is required to satisfy the broad based criteria in respect of each class of shares. MCV structure which does not comply with the above condition can seek registration under Category III.
Q112.
As per the reply to Q40 of the FAQs, Category III FPI applicants are required to furnish a certificate from their banks certifying that they have satisfactory banking relationship for more than a year. However, in the given case the entity was set-up less than one year back and is already registered as a SA. Accordingly, can this entity be exempted from the requirement of such bank certificate?
With the commencement of FPI regime, all existing FIIs and SAs are deemed FPIs. Therefore, a Category III FPI is required to demonstrate satisfactory banking relationship of more than a year only at the time of its conversion and/or renewal.
Q113.
Are individual FPIs allowed to obtain FPI registration in joint names (i.e. in the names of spouse, son, daughter, etc)? If yes, are the DDPs required to generate single FPI registration certificate in joint names?
No, FPI registration of individuals cannot be granted in joint names.
Q114.
In case of a company/AMC registered and regulated in one of the eligible jurisdictions whose ultimate beneficial owner is/are Indian company/PIO/NRI/resident Indian, the following may be clarified:
- The company is planning to launch an appropriately regulated broad based fund used solely to pool funds from foreign investors and then invest in India through the FPI route. Whether the fund is allowed to register as Category II FPI? Should the beneficial ownership of the company launching the fund be considered? It is understood that beneficial ownership of the company may not be considered as the fund solely consists of funds pooled from foreign investors.
- Can an entity which is incorporated outside India register as FPI where the beneficial owner of that company is a resident Indian?
- In the FPI regime, NRI/PIO/resident Indian is not eligible to make investments as an FPI. Further, it has been clarified in reply to Q 91 that a company which is majority owned by one or more NRI/PIOs shall not be allowed to make investments as an FPI. However, if such company is appropriately regulated it may be given registration as Category II FPI for the purpose of acting as investment manager for other FPIs. This position is the same as in FII regime where companies promoted by NRIs were registered as non investing FIIs.
- In the FII regime, such entities were granted registration with the condition that they would not be allowed to make investments on behalf of self. This position shall continue in the FPI regime.
Q115.
In Netherlands there are investment structures which under the Dutch law are known as fondon voor gemene rekening (FGR). FGR is a pooled investment vehicle. It is not a legal entity. It is created by agreement between the fund manager, the custodian/depositary and one or more investors. The agreement obliges the fund manager to invest and manage the joint account of the investors. Usually, the legal ownership of the FGR assets is held by a separate custodian. The FGR is not required to obtain a license from the securities market regulator of the Netherlands. However, the fund manager of the FGR must have a license to operate. An FGR meeting certain requirements can claim exemption with regards to having a licensed fund manager. Whether a FGR can be granted Category III FPI registration under the Regulations? Alternatively, can the custodian of the FGR holding assets on behalf of the FGR be registered as Category III FPI on behalf of the FGR?
In terms of Regulation 5(c) of the Regulations, all those entities not meeting the eligibility for Category I or Category II FPI can seek registration as Category III FPIs provided they meet all other eligibility conditions.
Q116.
Can SEBI provide a consolidated list of eligible jurisdictions for FPI?
The eligible jurisdictions which fulfil the conditions laid down in the Regulations are subject to change; therefore, it is recommended that the websites of IOSCO/BIS/FATF be checked to ascertain eligible jurisdictions. The web links to these websites are mentioned in reply to Q32 in the FAQs.
Q117.
In the erstwhile FII regime, the sub funds/schemes of a Trust/Mutual Fund/Asset Management Company/SICAV used to seek registration as a SA. They were not regulated by the securities market regulator. Whereas, the Trust / Mutual Fund / Asset Management Company/SICAV used to seek registration as FII which were regulated by the securities market regulator.
In the FPI regime, can these sub funds/schemes be considered as regulated entities on the basis of their Trust/Mutual Fund/Asset Management Company/SICAV and get registered as Category II FPI without the need for the Trust / Mutual Fund / Asset Management Company/SICAV to get registered as a FPI?
Such sub funds/schemes may be considered appropriately regulated and register as Category II FPIs if they are able to provide supporting documents with regard to their regulated status.
Q118.
In case of an unregulated broad based fund namely "X", seeking registration as Category II FPI by virtue of its investment manager namely "Y" registered as Category II FPI, does X need to have investment management agreement with Y to be eligible to get registered as Category II FPI? Can "X" also appoint other investment manager namely "Z", who may not seek registration as Category II FPI?
Yes, "X" needs to have investment management agreement with "Y". "X" may appoint "Z" as its investment manager also. Further, it has been clarified in clause 9 of Operational Guidelines issued vide SEBI Circular No. CIR/IMD/FIIC/02/2014 dated January 08, 2014 that for the purpose of Regulation 5(b)(iii) Investment Manager shall mean an entity performing the role of investment management, investment advisory, trustee or any equivalent role and is responsible for investment related compliance of the FPI.
Q119.
A Mauritius based bank seeking registration as FPI is regulated by “The Bank of Mauritius” (The Banking regulator in Mauritius). However, the regulator is not a member of “BIS”. Hence the applicant is not eligible for registration as Category II in terms of the Regulations. Whether the aforesaid applicant can be considered for registration under Category III FPI (considering them as a financial institution) as the securities market regulator of Mauritius is a signatory to IOSCO MMOU.
No, such an applicant does not satisfy the requirements laid down in Regulation 4(c) of the Regulations.
Q120.
In reply to Q86 of the FAQs it has been inter alia clarified that an FII is not required to convert as Category II FPI prior to the conversion of a SA as the FII is deemed to be an FPI, in terms of the Regulations.
Thus, it is requested to clarify that even in case of an unregulated broad based fund, seeking registration as a Category II FPI, on the basis of its Investment Manager, which is registered as FII, such FII is not required to be converted as Category II FPI, before granting registration to an unregulated broad based fund as Category II FPI.
Such FII is not required to convert as Category II FPI prior to the registration of an unregulated broad based fund as Category II FPI.
Q121.
Where the applicant is a fund having MCV structure but is not broad based and desires to seek registration as Category III FPI, how will it declare its MCV status?
Where the applicant is a fund having MCV structure but is not broad based and desires to seek registration as Category III FPI, it can declare that the applicant is an MCV by constitution and has more than one class of share or has an equivalent structure. It need not provide an undertaking regarding broad base nature of the portfolio.
Q122.
In reply to Q26 of the FAQs it has been clarified that an FPI applicant will not be considered as opaque structure and will be considered for grant of registration if it is required by its regulator or under any law to ring fence its assets and liabilities from other funds/ sub funds. Such applicants shall be eligible to be register as FPIs only upon meeting the following criteria:
- the applicant is regulated in its home jurisdiction;
- each fund/ sub fund in the applicant satisfies broad based criteria, and
- the applicant gives an undertaking to provide information regarding its beneficial owners as and when SEBI seeks this information.
Are the above criteria applicable to those funds which neither meet broad based criteria nor want to seek conditional approval but belong to jurisdictions that allow ring fencing?
Such funds shall meet all the above-mentioned conditions to become eligible for FPI registration. Therefore, an applicant which belongs to jurisdictions that allow ring fencing but is not broad based is not permitted to obtain FPI registration in any of the three categories.
Q123.
Are FPIs allowed to invest in portfolio schemes managed by Portfolio Managers in India? If yes, what is the procedure for the same?
As per Regulation 16A of SEBI (Portfolio Managers) Regulations, 1993, FPIs may avail the services of a portfolio manager. Further, an FPI is allowed to invest in all the securities specified in terms of Regulation 21 (1) of SEBI (FPI) Regulations, 2014 ("the Regulations").
Q124.
An FPI cannot continue to buy, sell or otherwise deal in securities post expiry of its registration. However, can such an FPI apply for renewal/continuation/conversion post expiry of its registration? If yes, what should be the time frame after the expiry before which the DDP can accept renewal/continuation/conversion application?
An FPI cannot apply for renewal/continuation/conversion after expiry of its registration. Such an FPI will have to make a fresh application for registration, if it so desires, after surrendering its earlier registration.
Q125.
In case a newly established applicant has less than one year of track record and applies under Category III FPI, whether the track record of its investment manager (or equivalent) or its parent or group company (having beneficial ownership of more than 50%) can be taken into consideration for satisfying conditions mentioned in Regulation 4(h) of the Regulations. If so, whether a certificate from the bank certifying that the investment manager or parent or group company having satisfactory banking relationship for more than a year can be considered instead of that of applicant?
It is clarified as follows:
- In case of an FPI applicant, which is set up as a fund and has been in existence for a period of less than a year, a DDP may consider the track record of its investment manager, who has promoted it.
- In case of an FPI applicant, which is not set up as a fund and has been in existence for a period of less than a year, a DDP may consider the track record of its promoter company/group company.
- Such FPI applicant shall be required to furnish requisite certificate from its bank to its DDP upon completion of one year from the date of its establishment.
Q126.
Can a DDP process application of its existing clients i.e. erstwhile FII/SA/QFI for their conversion/continuance of registration by obtaining only fresh documents which are not available with DDP instead of obtaining all documents. Or can a DDP process the application by obtaining an undertaking stating that there is no change in the documents previously submitted?
In case of conversion of existing FII/SA/QFI, DDP should obtain from the FPI an application form (Form A) along with supporting documents, requisite registration fees etc. at the time of processing of its application. Further, the procedure to be followed at the time of payment of registration fee for continuance of registration of FPI, has been clarified in reply to Q51 of the FAQs.
Q127.
Can a foreign bank, ultimately owned by an NRI, be eligible to register as an FPI?
It has been clarified in reply to Q 91 of the FAQs that NRI/PIO is not eligible to make investments as an FPI. Accordingly, a company which is majority owned by one or more NRI/PIOs shall not be allowed to make investments as an FPI. However, if such company is appropriately regulated it may be given registration as Category II FPI for the purpose of acting as investment manager for other FPIs. This position is the same as in FII regime where companies promoted by NRIs were registered as non investing FIIs.
Q128.
It is observed that in USA, Collective Investment Funds (CIFs) meeting the conditions specified in the Investment Company Act of 1940 are not required to register with U.S. Securities and Exchange Commission (SEC). CIFs are sponsored/administered by national banks, which are regulated and supervised by Office of the Comptroller of the Currency (OCC). Can such CIFs be eligible to get registered as Category II FPI?
Based on the information provided above, a DDP may consider CIFs from USA as appropriately regulated subject to their compliance with Regulation 5(b)(i) of the Regulations.
Q129.
An unregulated broad based fund namely "X" was registered as Category II FPI on July 01, 2014 by virtue of its investment manager namely "Y", which was registered as Category II FPI on June 01, 2014. Will the expiry of registration of "X" be co-terminus with "Y" or will it be an independent block of 3 years?
The Regulations inter-alia stipulate that the registration granted by a DDP to FPI applicant shall be permanent unless suspended or cancelled by SEBI or surrendered by FPI. For this purpose, an FPI is required to pay the applicable registration fees for every block of three years, till the validity of its registration. Thus, the validity of applicable registration fees paid by "X" will be three years from the date of its registration i.e. July 01, 2014.
Q130.
An unregulated fund namely "X", desirous of seeking FPI registration, is having only one fund namely "Y" as its sole investor. "Y" has appointed its investment manager namely "Z" to manage the investments. Can a DDP categorize "X" as category II FPI in terms of Regulation 5 (b) (iii) of the SEBI (FPI) Regulations, 2014 ("the Regulations")?
No. Regulation 5 of the Regulations inter alia provides that unregulated broad based funds may be registered as Category II FPI if investment manager of such funds is itself registered as Category II FPI. Accordingly, the FPI applicant viz. "X" should have an investment management agreement with "Z" and shall also be broad based in terms of the Regulations.
Q131.
How will the erstwhile FIIs and Sub Accounts (SAs) which do not meet the eligibility requirements as stipulated under the Regulations, be categorized? For instance, an erstwhile Mauritius based FII registered under the Bank category, is regulated by its banking regulator, which is not a member of BIS. The FII now intends to convert as FPI. Under which category, will such an FII be categorized?
The Regulation 2 (h) and Regulation 3 (1) of the Regulations inter alia provide that all FIIs and SAs shall be deemed FPIs till the expiry of their registration. Further, it has been clarified in reply to Q 4 of the FAQs that all FIIs and SAs, including those which do not meet the eligibility requirements as stipulated under the Regulations, can continue to deal in Indian securities till the validity period of FII/SA registration for which fee has been paid. After the validity period, they can continue to deal as FPIs subject to payment conversion and registration fees.
Accordingly, DDPs shall categorize FIIs/SAs in a suitable category, which does not adversely affect their business continuity subject to their compliance with Regulation 5 of the Regulations.
Q132.
Under the FPI regime, if an erstwhile FII intends to surrender its certificate of registration as FII, does all of its underlying sub accounts (now deemed FPIs) need to mandatorily convert themselves to FPIs at the time of surrender of its FII registration? If not, then what will be the validity of registration of such sub accounts post surrender of registration by the FII?
Under the FPI regime, all erstwhile FIIs and SAs are deemed to be independent FPIs. Thus, the aforesaid sub accounts need not mandatorily convert as FPI at the time of surrender of license by its FII. These SAs can continue to deal till the original validity period of FII/SA registration.
Q133.
SEBI circular ref. no. CIR/IMD/FIIC/21/2013 dated December 19, 2013 prescribes three specific conditions that need to be satisfied by an FPI applicant, which is required by its regulator or under any law to ring fence its assets and liabilities from other funds/ sub funds. Can such an FPI applicant can seek conditional registration which allows it to satisfy broad based criteria within 180 days?
No, such an FPI applicant is mandatorily required to comply with all the conditions including fulfilment of broad based criteria as laid down in the aforesaid SEBI circular at the time of seeking FPI registration.
Q134.
Can a DDP grant approval to post facto requests for addition of share classes?
In the FII regime, post facto intimation of addition of share classes were accepted upon confirmation by the FPI that t it continues to be broad based as per FII Regulations. Further, SEBI also used to take appropriate action against the FPI for failure to take prior approval. The same practice shall continue in the FPI regime. The DDP shall accept the post facto request for addition in share class upon confirmation by the FPI that it meets the broad base criteria as per the SEBI (FPI) Regulations. Such cases shall also be referred to SEBI for taking appropriate action.
Q135.
An FPI applicant is an Investment Holding Company having Global Business License (GBL)-1 from Financial Services Commission (FSC), Mauritius and meets the broad base criteria. Whether such applicant will be considered as “Appropriately Regulated” in terms of Regulation 5(b) of SEBI (Foreign Portfolio Investors) Regulations, 2014 ("the Regulations")?
Mauritius based “investment holding company” should not be treated as appropriately regulated based on certificate issued by FSC-Mauritius. This position is the same as in FII regime.
Q136.
In reply to Q 94 of FAQs relating to the procedure to be followed for name change request in case of an existing FII/SA who is yet to get converted as FPI it has been inter-alia mentioned that the DDP shall retain with it the original FII registration certificate earlier issued by SEBI to such an erstwhile FII. Can SEBI provide guidance in case the FII has misplaced/lost the original certificate of registration?
In the FII regime, in case an FII had misplaced/lost the original certificate of registration and therefore was not able to submit the certificate along with request for name change, the FII was advised to undertake to surrender the same as and when it finds the certificate. The same position shall continue in FPI regime also where the DDP may issue a letter to FPI acknowledging the name change after submission of the aforesaid undertaking by the concerned FPI.
Q137.
The Regulation 21(4)(f) of the Regulations inter alia states that an FPI shall hold, deliver or cause to be delivered securities only in dematerialized form. In view of the same, can SEBI provide guidance on whether an FPI can continue to hold, purchase and deliver Rights entitlements which are non-dematerialised and are issued in physical form only.
At present, the Rights entitlements are only in physical form, therefore, the FPIs may continue to hold, purchase and deliver Rights entitlements in the physical form.
Q138.
The process of surrender requests of FPIs is specified in clause 3 of Operational Guidelines for DDPs dated January 08, 2014. In this regard, is the DDP required to confirm nil balance of holdings in the security account and bank account of the FPI to SEBI?
Yes, as specified in clause 3 of the Operational Guidelines, before a DDP accepts surrender of registration of an FPI, it must obtain No Objection Certificate (NoC) from SEBI. For this purpose, the DDP shall inter-alia confirm to SEBI that the concerned FPI has nil balance in its security and bank accounts.
Q139.
Can an erstwhile FII (now deemed FPI) apply for transfer of its FPI (erstwhile SAs) to another FPI?
Pursuant to the commencement of the FPI regime, the FII-SA structure has been done away with and all erstwhile FIIs and SAs are deemed to be independent FPIs. Accordingly, such transfers are redundant in the FPI regime.
Q140.
Can an FPI invest in listed Non Convertible Debentures (NCDs) of non-infrastructure companies?
An FPI is allowed to invest in all the securities specified in terms of Regulation 21 (1) of the Regulations including listed NCDs of companies.
Q141.
Is an erstwhile FII/Sub Account required to pay applicable conversion fee even after expiry of its registration validity?
It has been clarified in reply to Q 124 of the FAQs that an FPI cannot apply for renewal/continuation/conversion after expiry of its registration. Such an FPI will have to make a fresh application for registration, if it so desires, after surrendering its earlier registration. Hence, the question of payment of conversion fee by such an erstwhile FII/sub account does not arise.
Q142.
An FPI applicant namely "X", desirous of seeking category III FPI registration, is having satisfactory banking relationship with its bank namely "Y" for more than a year. "X" has now changed its bank from "Y" to "Z" just before submitting FPI application to a DDP. Can a DDP consider a bank certificate from "Y"?
Yes, a DDP may consider a requisite bank certificate from "Y". However, DDP may also advise "X" to submit the requisite bank certificate from "Z" upon completion of one year of banking relationship of "X" with "Z".
Q143.
Can a foreign citizen, who does not have any PIO/OCI registrations in India, though born in India, be allowed to invest through the FPI route?
As per Regulation 4 of the Regulations, while considering an FPI application, a DDP is inter alia required to ensure that an FPI applicant is not an NRI. Accordingly, a DDP has to exercise adequate due diligence and satisfy itself that such an FPI applicant is granted registration subject to fulfilment of applicable eligibility requirements.
Q144.
Can a FDI investor holding equity stake in Indian company through the FDI route make debt investments in the same company simultaneously as an FPI?
The FDI eligible instruments are not only 'equity' but also Compulsorily Convertible Preference Shares (CCPs) and Compulsorily Convertible Debentures (CCDs). Since this does not cover debentures/debt, these can be subscribed to subject to compliance with the respective FEMA/SEBI regulations.
Q145.
Whether an FPI can invest in unlisted non-convertible debentures (NCDs)/bonds issued by an Indian company, which is not in the infrastructure sector, however, issue proceeds are proposed to be invested in infrastructure sector?
No. As per Regulation 21 (1) (j) of SEBI (FPI) Regulations, 2014 ("the Regulations"), an FPI is only allowed to invest in listed and unlisted NCDs/bonds issued by an Indian company in the infrastructure sector, where ‘infrastructure’ is defined in terms of the extant External Commercial Borrowings (ECB) guidelines.
Q146.
Can a DDP namely "X" re-categorize an FPI namely "Y", which is already registered under category III, to category II, during the validity of its registration, if "Y" fulfills the eligibility requirements applicable to Category II FPI?
Yes, if "X" is satisfied about the fulfillment of eligibility requirements applicable to category II FPI by "Y", then "X" can re-classify "Y" from category III to category II subject to payment of registration fee applicable to category II FPI by "Y". On account of such re-categorization, "X" shall re-issue the revised certificate of registration to "Y" as category II FPI having the same validity of registration as granted to it as category III FPI.
Q147.
An unregulated broad based fund namely "X" wishes to get registered as category II FPI by virtue of "Y" as its investment manager. "X" is having investment management agreement with "Y". "Y" is registered as category II FPI under the bank category. The license/registration granted to "Y" by its regulator permits it to carry out activities related to investment management. "Y" is the only investor in "X". Can X" be treated as compliant to Regulation 5(b)(iii) of the Regulations?
It has been clarified in reply to Q23 that in case an FPI applicant has a bank as an investor, then such FPI shall be deemed to be broad based for the purpose of Regulation 5(b) of the Regulations. Accordingly, a DDP may treat "X" as being compliant with Regulation 5(b)(iii) of the Regulations, if "Y" is a Bank.
Q148.
Whether a DDP can categorize an unregulated FPI applicant under category II, on the basis of its holding company, which is a regulated entity and is registered as a Category II FPI?
No. A DDP is required to assess the eligibility criteria of an FPI applicant and categorize the FPI applicant in accordance with the laid down framework.
Q149.
In some jurisdictions, Limited Liability Partnership (LLP) / Limited Liability Company (LLC) are used as legal structure for pooling / investment vehicles. Can a DDP consider such structures be considered as equivalent to funds?
While considering any entities/structures as funds, a DDP shall ensure that such entities have been set up for the sole purpose of pooling funds and making investments in terms of Regulation 5 of the Regulations.
Q150.
With respect to Regulation 5(b)(iii), can an FPI applicant which is unregulated and currently not satisfying broad based criteria seek conditional registration under Category II on the basis of its investment manager which is registered as a Cat II FPI?
It has been inter alia clarified in reply to Q 130 that an unregulated broad based fund seeking to get registered as category II FPI by virtue of its investment manager, shall also be broad based in terms of the Regulations. Accordingly, such an unregulated broad based fund is required to fulfill the broad based requirement at the time of seeking registration as category II FPI.
Q151.
In case of MIM structures in the FPI regime, whether the proprietary FPI applicants i.e. various pools of funds (“pools”) managed by different investment managers are required to provide broad based details at the time of seeking FPI registration if the same details have already been furnished to a DDP by its parent fund at the time of seeking registration as FPI?
In case of MIM structures in the FPI regime, if a parent fund has already furnished broad based details to a DDP at the time of its registration as FPI, then, the respective pools need not provide the broad based details at the time of their registration. This position is the same as in FII regime, where in case of MIM structures, proprietary sub accounts were not required to provide broad based details at the time of seeking sub account registration.
Q152.
A non-investing entity is applying for FPI registration in the category of Investment Advisor/Manager for the sole purpose of Regulation 5(b)(iii) of the Regulations and will not make any proprietary investment after its registration as category II FPI. In such a case, whether a DDP is required to obtain relevant documents from the FPI applicant whereby it has been clearly authorized to invest outside its country of incorporation/ establishment?
As such an FPI applicant will not make any proprietary investments after its registration as category II FPI, DDP may not insist on any such documents from the FPI applicant evidencing an authorization to invest outside its country of incorporation/ establishment. However, in future, should the category II FPI choose to make investments on its own account, then all necessary documents should be obtained by the DDP.
Q153.
If an erstwhile QFI (i.e. deemed FPI) is ineligible to covert to FPI within the stipulated timeframe i.e. January 06, 2015 then can such an erstwhile QFI continue to hold the equity/debt which it has invested upto the aforesaid timeframe?
DDPs shall process such cases as per the procedure specified in the clause 5.2 in the Operational Guidelines issued vide SEBI Circular No. CIR/IMD/FIIC/02/2014 dated January 08, 2014.
Q154.
In case of a Master-Feeder structure, can a DDP consider feeder fund's PCC/MCV Declaration and Undertaking (D & U) as specified in SEBI Circular No. CIR/IMD/FIIC/1/ 2010 dated April 15, 2010, which has been submitted by its master fund (i.e. FPI applicant) on behalf of the feeder fund?
In the erstwhile FII regime, SEBI had considered the aforesaid D & U of a feeder fund submitted by its master fund on behalf of feeder fund. The same position shall continue in the FPI regime.
Q155.
If an FPI applicant, which is present in multiple jurisdictions, is suspended by one of its foreign regulator and if this suspension does not affect the entity or any of its affiliates’ ability to trade in any other country around the world, whether a DDP can consider such an applicant eligible for grant of FPI registration?
It has already been clarified in reply to Q 35 of the FAQs that any past action taken by an applicant's regulator may not necessarily render such an applicant ineligible as long as such action did not result in cancellation of its registration. However, while granting registration to an FPI, a DDP is required to exercise adequate due diligence and satisfy itself that such an FPI applicant is granted registration subject to fulfillment of applicable eligibility requirements.
Q156.
Is an FPI applicant being a fund required to provide the details of disciplinary history for its sponsor/promoter investment manager in the application form 'A' for grant of registration as an FPI?
An FPI applicant is required to provide all the relevant details mandated in Form 'A' in SEBI (FPI) Regulations, 2014. However, while granting registration to an FPI, a DDP is required to exercise adequate due diligence and satisfy itself that such an FPI applicant is granted registration subject to fulfillment of applicable eligibility requirements.
Q157.
Where an FPI applicant is a fund, is it required to provide the details of its umbrella fund/its promoter/its sponsor etc. under the group details in clause 1.7 in the application form 'A' for grant of registration as an FPI?
An FPI applicant is required to provide all the relevant details mandated in Form 'A' in SEBI (FPI) Regulations, 2014. However, while granting registration to an FPI, a DDP is required to exercise adequate due diligence and satisfy itself that such an FPI applicant is granted registration subject to fulfillment of applicable eligibility requirements.
Q158.
An FPI applicant namely "X', which is master fund, has two underlying feeder funds namely 'Y' and 'Z' with 'Y' holding more than 49% in 'X'. While ascertaining the fulfillment of broad based criteria by 'X', whether a DDP is required to consider the underlying investors of both the feeder funds together or separately.
In terms of Explanation 2 of Regulation 5 (b) of SEBI (FPI) Regulations, 2014, "Y" is required to meet the broad based criteria.
Q159.
A sovereign wealth fund (SWF) namely "X" holds more than 49% in a fund namely "Y", which is seeking FPI registration. Can a DDP consider "Y" as broad based in terms of SEBI (FPI) Regulations, 2014?
While considering "Y" as broad based fund, a DDP is required to ensure that the underlying investor has been set up for the sole purpose of pooling funds and making investments in compliance with Explanation 2 of Regulation 5 (b) of SEBI (FPI) Regulations, 2014. If so, the DDP may grant registration to "Y" as an FPI in the appropriate category subject to fulfillment of eligibility criteria. Upon grant of registration to "Y" as an FPI, its investment limit shall be clubbed with other FPIs based on common ultimate beneficial ownership, if any.
Q160.
In case of a Master-Feeder structure, PCC/MCV Declaration and Undertaking (D & U) as specified in SEBI Circular No. CIR/IMD/FIIC/1/ 2010 dated April 15, 2010 of the feeder fund is also required to be submitted to a DDP. In certain jurisdictions there are restrictions to disclose the name of the underlying investors in the fund. In such cases, can a DDP consider PCC/MCV D&U for such feeder fund, which has generic details of such investor (viz. bank, sovereign fund, mutual fund, insurance, etc.) instead of its name?
An FPI applicant is required to furnish all the relevant information with respect to the feeder funds viz., names, place of incorporation, corpus, generic type and number of investors along with their respective proportionate holdings to its DDP.
Q161.
Whether pension/retirement plans of international or multilateral organizations or agencies will be categorized as Cat I or Cat II FPI?
Under the FPI regime, the Government and Government related entities are eligible for grant of registration as Category I FPI. Whereas, the regulated entities/funds such as pension funds are eligible for grant of registration as Category II FPI. Accordingly, while categorizing such pension/retirement plan applicant in the appropriate category, a DDP may assess its eligibility criteria and categorize it in accordance with the laid down framework.
Q162.
A private bank namely "Y" is one of the investors in a fund namely "X", which seeks to get registered as an FPI. "Y" intends to invest on behalf of multiple clients. Can a DDP consider "X" eligible for grant of registration as an FPI?
While assessing the eligibility of an FPI applicant, a DDP may refer to the reply to Q# 21 of the FAQs, which states that private bank/merchant bank cannot invest on behalf of their clients. They are only permitted to make proprietary investments.
Q163.
If a regulated fund, seeking FPI registration, is a non-broad based and confirms to a DDP that it does not intend to become broad based in future, can the DDP consider it for grant of registration as category III or category II conditional registration?
An FPI is required to select the most appropriate category for it in Form 'A' in SEBI (FPI) Regulations, 2014. The DDP shall be required to assess the eligibility criteria of the FPI applicant and categorize it in accordance with the laid down framework.
Q164.
It has been clarified in reply to Q # 49 of the FAQs that every fund / sub fund / share class needs to separately fulfil broad based criteria. Does this requirement apply to those funds/sub funds/share classes which do not invest in India?
The requirement for fulfilling the broad based requirement may not be applicable to those share classes, which do not intend to invest in India. However, the DDP shall ensure that such share classes shall not invest in India in future.