Mumbai, March 20, 2017

Regulator is in talks with tax consultants seeking inputs on framing new registration form for FPIs

The Securities and Exchange Board of India (Sebi) is working on a plan to ease entry norms for overseas investors. According to sources, the regulator may grant a single window clearance mechanism where they will not require obtaining separate approval from various regulatory bodies. The amendments believed to be kicked in financial year 2018.

The move is based on representations received from stakeholders and is aimed at easing the process of foreign portfolio investors (FPIs) registration at the time of account-opening.

At present, the FPIs requires multi-agency clearances including Sebi, Reserve Bank of India (RBI) and Income-tax department. This approval at least takes 45-50 days time of its application filed. Issuance and verification of PAN card is under tax department purview which itself takes more than 15 days time to get clear. However, FPIs need to provide the copy of PAN card within 60 days of account-opening or before remitting funds out of India, whichever is earlier to their intermediaries.

A regulatory official aware of the development said, “Regulator is working on various aspects of making the registration process simpler for foreign investors. We have sought views from legal and tax experts on how to reduce burden and make the process hassle-free,” he said

Other agencies like RBI, Central Board of Direct Taxes (CBDT) (a governing body of I-T department) has been also roped in to fine-tuned the registration process, he added.

Sebi said to have also consulted couple of big tax consultants like PwC , Deloitte seeking inputs on framing new registration form for FPIs.

Under the current mechanism, FPIs will need to apply for registration through Designated Depository Participants (DDPs). DDP are authorized to collate and verify the documents needed for the registration. After verifying all the documents DDP need to submit it to the regulator along with the form. In case of additional information being sought for the registration, they are required to dispose the information within 10 days of the application filed. Post that, FPIs need to apply for PAN card and also need to take approval from RBI for transaction in foreign currency.

"Obtaining muti-agency approval is cumbersome at times. The move will enhance operational flexibility and also change the perspective of those foreign entities who are choosing other destination over India, said Suresh Swamy, partner, PwC.

“Any simplification of process is always welcome. From the perspective of foreign entities it is quite helpful as currently it takes more than 30 days for the registration. So reduction of time line will make the process easier. However, Sebi being a regulator need to maintain adequate checks and balances so that no opaque structures allow entities to hide identity of beneficial owners,” Pranay Bhatia, partner, BDO India.

Legal experts say that regulator is mulling changes at a time when government is tightening the tax regime and disclosure requirements for various types of overseas funds. “Stringent requirements while seeking registration at times is cited as a reason for not seeking registration as a FPI. Putting in place any further simplified & easier registration process and operating framework will perhaps encourage investors to register as a FPI instead of coming through the offshore derivative instrument (ODI) route,”said Yogesh Chande, partner, Shardul Amarchand Mangaldas.

He adds, the value of ODI as a percentage of the total assets of the FPIs under their custody is gradually reducing because of the continuous strengthening of the P-notes issuers norms. So, it is natural that, Sebi is expecting more inflows to come through the FPI route as opposed to ODI route.”

Expert also say that the timing of the move could not be better as India is currently a bright spot in the global markets and more number of overseas funds are looking to take exposure of Indian market. “Scope of new entrants cannot be ruled out as stock market is doing really well. There are new investor class who will keep emerging and showing interest in Indian market. Rupee getting stronger is a clear indication that how global investor repose confidence in Indian market,” said Bhatia.

[The Business Standard]