The Securities and Exchange Board of India (Sebi) on Friday issued revised KYC norms for foreign portfolio investors (FPIs) following its board decision to accept most of the recommendations of the H R Khan panel set up to review the rules for such entities.

The market regulator issued two circulars on KYC (Know Your Customer) requirements and the eligibility conditions for FPIs.

Both resident and non-resident Indians have been permitted to hold a non-controlling stake in FPIs, subject to certain conditions.

Besides non-resident and resident Indians, OCIs (Overseas Citizens of India) can be part of FPIs.

However, single and aggregate holdings should be below 25 per cent and 50 per cent, respectively, of the assets under management of the FPI.

The FPIs can be controlled by investment managers that are controlled and or owned by an NRI, resident Indian, or OCI.

The investment manager must be regulated in its home jurisdiction and should register itself with Sebi as non-investing FPI. The non-investing FPI could be directly or indirectly owned or controlled by an NRI, OCI or RI.

The restriction that NRI/ OCI/RI should not be in control of an FPI will not apply to FPIs which are “offshore funds” for which a no-objection certificate has been provided by the board in terms of mutual fund regulations.

Existing FPIs and new applicants would be given two years from the date of the new norms coming into force or date of registration, whichever is later, to comply with the new rules.

In another relaxation, Sebi said that in the event of a temporary breach, a time period of 90 days would be given to ensure compliance.

Review rule

With regard to a periodic KYC review, Sebi said such a review (including change in beneficial owners) or their holdings should be done based on the risk categorisation of the FPIs.

In case of FPIs based in high-risk jurisdictions, the review should be done every year.

The BO is a person or a group of persons who owns and controls the FPI. In April, the regulator had proposed new norms on KYC and BO identification but several FPIs had expressed concerns over the change in rules and they had expressed the apprehension that $ 75 billion of investments will exit India. The threshold for identification of BOs was then fixed at 25 per cent if it is a company and 15 per cent in the case of a partnership firm or a trust. For FPIs coming from `high risk jurisdictions’, the BO threshold was fixed at 10 per cent.

ID check

• Resident Indians, NRIs, overseas citizens of India (OCIs) can hold non-controlling stake in FPIs
  
• Investment managers for FPIs can be controlled by NRIs and resident
  
• Indians and overseas
  
• Citizens
  
• Changes part of revised KYC norms of Sebi