SEBI may impose stricter inspection norms on FPIs with China links

Securities and Exchange Board of India, or SEBI, may impose stricter inspection norms on Foreign Portfolio Investors (FPIs) who have links with China.

Investors based in China and Hong Kong are often known to enter the FPI trail of India using Mauritius and Singapore. It is a reason investment managers who operate internationally are known to set up FPI hubs in Mauritius and Singapore, in order to facilitate investors from China. However, SEBI’s new proposal would now lead them to be subjected to stringent scrutiny.

SEBI, which is India’s regulatory body for the securities and commodity market and operates under the Ministry of Finance, has prepared a consultation paper that proposes the segregation of FPIs into two categories, according to a report in Moneycontrol. The proposal is to categorise FPIs as ones where the majority ownership is held by investors of Land Bordering Countries (or LBCs) and ones where over 50 per cent ownership belongs to non- Land Bordering Countries (non-LBCs). SEBI’s plan, according to the consultation paper, is reportedly to monitor all FPIs that are identified as LBCs.

While the step could work at controlling regulatory arbitrage on the part of Chinese investors, Foreign Direct Investment (FDI) would, on the other hand, need approval in advance for those who wish to invest in companies that are unlisted.

The paper prepared by SEBI also pointed out that the proposal would make sure that investors based in China did not take advantage of FPI norms to evade constraints that FDI imposes on them.