SEBI FPI Regulations 2019
The SEBI (Foreign Portfolio Investors) Regulations 2019 provide the regulatory framework for overseas investors to access Indian capital markets, streamlining the earlier FII and sub-account regime into a single, risk-based FPI registration system.
The FPI Regulations 2019 replaced the 2014 FPI Regulations following the recommendations of the H.R. Khan Committee and the Uday Kotak Committee on corporate governance, and became effective from 1 April 2019. The regulations categorise FPIs into three tiers based on risk: Category I (government entities, central banks, sovereign wealth funds, and international organisations), Category II (regulated pension funds, university endowments, appropriately regulated entities), and a residual Category III (all others). Category I entities enjoy the most streamlined registration process, while Category III entities face higher scrutiny and enhanced beneficial ownership reporting.
FPIs are required to obtain a certificate of registration from a Designated Depository Participant (DDP) rather than directly from SEBI, enabling faster on-boarding. The DDP performs KYC verification on behalf of SEBI and maintains records of beneficial ownership, consistent with FATF recommendations on anti-money laundering. Beneficial ownership thresholds require disclosure of natural persons holding more than 25% (for certain structures 15%) of the FPI entity's economic interest.
Investment restrictions for FPIs include: (a) aggregate FPI investment in any listed company must not exceed 24% of total paid-up capital in each class (this 'aggregate limit' can be raised up to the sectoral cap by the company's board with shareholder approval); (b) individual FPI ownership is capped at 10% of total paid-up capital; (c) FPIs cannot own more than 10% of a corporate bond issue. The securities covered include equity, debt (both government and corporate), exchange-traded derivatives, and units of REITs and InvITs.
The 2019 regulations introduced the concept of 'FPI on-boarding without PoA' for certain Category I entities, and streamlined the transfer of securities to the FPI's demat account. A critical addition was the 'grandfathering' provision for FIIs registered before 2014 who had not met the new KYC norms, allowing a transition period to comply. FPIs exceeding the 10% individual limit trigger open-offer obligations under the SEBI Takeover Code.