## Report on SEBI Initiatives for FPI Ease of Doing Business
**1. Executive Summary:**
This report analyzes a keynote address by a SEBI official regarding initiatives to improve the ease of doing business for Foreign Portfolio Investors (FPIs). The core purpose, as inferred from the text, is to attract and retain quality foreign investment by streamlining processes, enhancing transparency, and addressing operational challenges. Key initiatives include the establishment of a dedicated FPI outreach cell, measures to simplify FPI registration and tax compliance, and ongoing efforts to prevent circumvention of SEBI regulations. The report highlights the specific changes and their expected impact on FPIs and related stakeholders.
**2. Introduction:**
This report provides an overview and analysis of the Securities and Exchange Board of India's (SEBI) policies and initiatives aimed at improving the ease of doing business for Foreign Portfolio Investors (FPIs). The analysis is based solely on the provided text from a keynote address delivered on September 3, 2024.
**3. Policy Overview:**
* **Core Objectives:** Based on the provided text, the core objectives are:
* Attracting and retaining "good quality foreign savings" through FPI investment.
* Improving the ease of doing business for FPIs.
* Ensuring no circumvention of SEBI regulations.
* Addressing operational challenges related to tax compliance and registration.
**4. Background and Rationale:**
The text suggests a need to balance the growing participation of domestic investors with the continued importance of FPI inflows. The rationale for these initiatives is to address existing pain points for FPIs, making India a more attractive destination for foreign investment by reducing operational inefficiencies, enhancing transparency, and simplifying compliance processes. The text specifically highlights issues related to tax compliance delays, opaque custody charges, and complex registration procedures as areas needing improvement.
**5. Key Provisions / Changes:**
The text details several *new* provisions and changes aimed at improving the FPI experience:
* **SEBI FPI Outreach Cell:** A dedicated cell has been established within SEBI to assist FPIs facing registration issues.
* **Custodian DDP Standards Setting Forum (CDSSF):** A forum comprising custodians, DDPs, and FPIs has been set up to set implementation standards for FPI regulations in consultation with SEBI. This aims to create practical standards that prevent wrongdoing without hindering good business. This forum was crucial in the SOP for the August 24, 2023, enhanced disclosure circular.
* **T+1 Settlement:** Implementation of T+1 settlement cycle aims to improve efficiency and reduce risk. FPI rejection rates are lower under T+1 than previously.
* **Sale Post FPI Expiry:** FPIs are now allowed to sell investments even after their registration has expired, subject to checks and balances.
* **Expanded Exemptions for August 24, 2023 Circular:** Exemptions for enhanced disclosures have been expanded to include universities and entities meeting PN3 conditions.
* **Same-Day Access to Funds After Settlement:** A system is being implemented to ensure FPIs can access their funds on the day of settlement, with tax confirmation obtained early in the day. This will be implemented from September 9th, 2024.
* **Common Ease of Registration Process:** A common SOP has been established across all DDPs and custodians. Depositories are creating a portal to track FPI application CAF status. Easing the filling up of the CAF allowing for easier modification of fields and prepopulated fields for FPI IMs setting up new FPIs.
* **Ease of Registration for Transparent FPIs:** SEBI is considering further improvements to the ease of doing investments for transparent FPIs, including reviewing the periodicity of KYC and exploring the use of SWIFT electronic confirmations.
**6. Target Audience and Stakeholders:**
The primary target audience is Foreign Portfolio Investors (FPIs). Other directly affected stakeholders include:
* Custodians
* Designated Depository Participants (DDPs)
* Brokers
* Market Infrastructure Institutions (MIIs)
* Depositories
* Tax Consultants
* Clearing Corporations
**7. Implementation Aspects (Inferred):**
* **Responsible Agency/Bodies:** SEBI is the primary responsible agency, with support from custodians, DDPs, depositories, tax consultants, and clearing corporations. The CDSSF plays a critical role in setting implementation standards.
* **Timelines:** The text mentions a specific date, September 9th, 2024, for the implementation of same-day fund access after settlement. No other specific timelines are provided.
* The FPI outreach cell is already operational.
* The August 24th circular and consultative SOP identified transparent FPIs.
**8. Expected Outcomes / Impact of Changes:**
The intended outcomes of these changes are:
* Increased FPI inflows due to improved ease of doing business.
* Reduced operational inefficiencies and costs for FPIs.
* Greater transparency in custody charges.
* Improved perception of India as an investment destination.
* Enhanced efficiency in tax compliance.
* Quicker access to funds for FPIs after settlement.
**9. Conclusion:**
The SEBI initiatives outlined in the keynote address represent a concerted effort to improve the ease of doing business for FPIs in India. By streamlining processes, addressing operational challenges, and enhancing transparency, SEBI aims to attract and retain quality foreign investment, contributing to sustained capital formation in the Indian market. The implementation of these changes, particularly the initiatives related to tax compliance and registration, are expected to have a positive impact on FPIs and the overall investment climate in India.
Key Entities Referenced
Shri Ananth Narayan G: Speaker at the CII Financing 3.0 Summit, WTM SEBI
WTM SEBI: World Trade Matters Securities and Exchange Board of India
CII Financing 3.0 Summit: Event where Shri Ananth Narayan G gave a keynote address.
September 03, 2024: Date of the keynote address.
FY20: Fiscal Year 2020
INR 12.3 lakh crores: Amount of money raised by domestic mutual funds into risk-oriented schemes since FY20
FPIs: Foreign Portfolio Investors
INR 3.4 lakh crores: Amount of money brought in by FPIs into equity markets since FY20
SEBI: Securities and Exchange Board of India, a regulatory body.
SEBI FPI outreach cell: A dedicated cell within SEBI to interact with FPIs and facilitate resolution of issues.
Custodian DDP Standards Setting Forum CDSSF: Forum comprising custodians, DDPs, and FPIs for setting implementation standards for FPI regulations in consultation with SEBI.
DDPs: Entities involved with FPIs and custodians
Standard Operating Procedure SOP: Established procedure for implementation
August 24, 2023 circular: SEBI circular on enhanced disclosures from certain FPIs.
T1: Mentioned in the context of improved efficiency and reduced risk, likely refers to a settlement cycle or system.
MIIs: Mentioned in the context of T1, likely Market Infrastructure Institutions
September 9th: Date from which tax confirmation will be obtained early on settlement day.
CAF: FPI application
FPI IMs: FPI Investment Managers
KYC: Know Your Customer
SWIFT: Mentioned in the context of electronic confirmations for paperwork attestation.
MPS: Mentioned in the context of SEBI regulations, could refer to Minimum Public Shareholding
SAST: Mentioned in the context of SEBI regulations, likely refers to Substantial Acquisition of Shares and Takeovers
RPT: Related Party Transactions
ODI consultation paper: Offshore Derivative Instrument consultation paper
Keynote Address by Shri Ananth Narayan G, WTM SEBI (Speaking Notes)
CII - Financing 3.0 Summit
“Improving ease of doing business for FPIs – a risk-based approach”
September 03, 2024
We are now celebrating the coming of age of the domestic investor – since FY20, we have seen
INR 12.3 lakh crores of money being raised by domestic mutual funds into risk-oriented schemes.
During the same time, FPIs have brought in INR 3.4 lakh crores into our equity markets. We now
need good quality paper issuance to match such inflows, so that a virtuous cycle of sustained
capital formation can ensue.
However, that doesn’t mean that FPI flows are not a priority anymore. In fact, ensuring that we
draw in good quality foreign savings remains a key objective for SEBI.
In today’s talk, I will cover the opening of the SEBI FPI outreach cell, measures underway to
improve ease of doing investments for FPI, and the remaining agenda on ensuring no
circumvention of SEBI regulations.
A. SEBI – FPI outreach cell
A dedicated FPI outreach cell has been set up within SEBI.
This cell has already interacted with over 500 FPIs, facilitated by custodians and DDPs.
Prospective FPIs that are facing issues during registration can also approach this FPI
cell for resolution of issues.
B. Ease of doing business for FPIs – registration & beyond
(a) Consultation on all implementation –
A Custodian & DDP Standards Setting Forum (CDSSF), comprising custodians, DDPs,
and FPIs have been set up for setting implementation standards for FPI regulations in
consultation with SEBI. This ensures that the implementation standards are practical,
and prevent wrongdoing without coming in the way of good business. This CDSSF
played a pivotal role in creating the Standard Operating Procedure (SOP) for the
implementation of the key August 24, 2023 circular on enhanced disclosures from
certain FPIs.
A few other examples of EODB initiatives that impact FPIs include:
1- T+1, that improves all round efficiency and reduces risk. Incidentally, rejection
rates in settlement for FPI are now lower in T+ rates are lower under T+1, than the
erstwhile T+1. Kudos to the brokers, MIIs and custodians.
- Sale post FPI expiry of FPI registration allowed with checks and balances
- Expanded exemptions for August 24, 2023 circular on enhanced disclosures (e.g.
Universities, PN3 conditions)
(b) Ensuring FPIs can access funds on the day of settlement
Tax compliance can and should be something in the background, with the FPI
insulated from the effects.
Certainly not something that should be used as a reason to delay release of funds,
resulting in hidden float income for custodians.
September 9th onwards – tax confirmation will be obtained from the consultants early
on settlement day, well in time for FPIs to take out money the same day if they so
desire. Depositories, tax consultants, custodians, DDPs, clearing corporations, and
others have put this solution together, with some regulatory nudging.
Some are positioning this as resulting in ‘increase in custody charges’. Withholding
funds for an extra day(s) costs investors a lot in terms of opportunity cost and is
inefficiency.
The earnings to custodians from such float income are opaque – and are implicitly
levied on FPIs. On top of it, it projects India – wrongfully – as a difficult place to do
business, with operational challenges around tax compliance.
In this area, efficiency, transparency, ease of doing business – will all be ensured from
September 9th, 2024.
Competition should determine transparent and fair charges – so far, we have had
near-zero custody charges – there no such thing as a free lunch. Have no doubt that
additional and transparent custody charges (if any) would be much lower than the
current opportunity loss being implicitly borne by FPIs.
(c) Common ease of registration process:
Common SOP already established across all DDPs/ custodians
2 Depositories are creating a portal to track and monitor FPI application (CAF) status
Easing filling up of the CAF – allowing for easier modification of fields
Pre-populated fields for FPI IMs setting up new FPIs
(d) Ease of registration for transparent FPIs
August 24th circular and resultant consultative SOP identified transparent FPIs – SEBI
is considering further improving ease of doing investments further for such FPIs
Reviewing periodicity of KYC for such FPIs
Exploring ways to ease paperwork/ attestation by use of SWIFT/ electronic
confirmations where legally possible
C. Remaining agenda on ensuring no circumvention of SEBI regulations such as MPS, SAST,
RPT
ODI consultation paper – 3,000+ responses
Identifying and handling segregated portfolios
SEBI is happy to consider further risk-based EODB, please reach out to us with ideas.
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