Q1: How can the DDP determine if the applicant is regulated or supervised by: the securities market regulator or the banking regulator of the concerned foreign jurisdiction?
The DDP may verify if the applicant is regulated or supervised, by the securities market regulator or banking regulator through any one of the following:
- Obtain a copy of certificate issued by such regulator or;
- Verify the registration details directly from the registry or the website of such regulator. [Ref. Regulation 4(b)].
Q2: How can the DDP determine if the FPI applicant is resident of a country whose securities market regulator is a signatory to (a) IOSCO’s MMOU (Appendix A Signatories) or a signatory to bilateral MOU with SEBI; (b) whose central bank is a member of Ban
The residency status of the FPI applicant may be ascertained from the tax residency status or from the place of incorporation/establishment through appropriate document such as ID issued by the Income Tax authority or appropriate incorporation document.
- List of countries where the securities market regulator is a signatory to IOSCO MMOU shall be verified by the DDP from the website of IOSCO. The current weblink is given below:
http://www.iosco.org/library/index.cfm?section=mou_siglist - List of countries that have bilateral MOU with SEBI shall be verified by the DDP from the website of SEBI. The current weblink is given below:
Click here to Download - The list of countries whose Central Bank is a member of the BIS shall be verified by the DDP from the website of BIS. The current weblink is given below:
http://www.bis.org/about/orggov.htm - List of countries that are listed in the public statements issued by FATF shall be verified by the DDP from the website of FATF. The current weblink is given below:
http://www.fatf-gafi.org/topics/high-riskandnon-cooperativejurisdictions
[Ref. Regulation 4(b), 4(c) and 4(d)].
Q3: How can the DDP verify the eligibility of Category I FPI?
In this regard, the DDP may obtain a declaration from the applicant that it fulfils the eligibility criteria of category I FPI. Additionally, the DDP may verify the relevant details under which the entity has been established – e.g. Govt Charter, Act, Legislation, the shareholding pattern provided by the FPI applicant, etc. For existing FIIs/ SAs, the DDP may continue to use the categories such as Sovereign Wealth Fund, Foreign Government Agency, Foreign Central Bank, International / Multilateral organization / agency under which the investor is already registered with SEBI. [Ref. Regulation 5(a)].
Q4: Whether a DDP is required to check validity of the document which shows the regulated status of the FPI applicant?
Yes. The DDP is required to check that the registration/license granted by its regulator has not been cancelled and is still valid.
Q5: Whether any past action against the FPI applicant by its regulator render the applicant ineligible for FPI registration?
Any past action taken by an applicant's regulator may not necessarily render such an applicant ineligible as long as such action did not result in cancellation of its registration.
Q6: For the purpose of determining whether an applicant meets the Broad Based Fund criteria, what information should be obtained by the DDPs?
DDPs may obtain investor information from the FPI applicant in the below format which is in line with the format prescribed in erstwhile FII Regulations.
Generic types of investors include Mutual Funds, Investment Trusts, Pension Funds, Insurance, Collective Investment Schemes, Endowments, Charitable Trusts, Corporates, Individuals, etc.In this regard, the DDP may satisfy itself that the applicant meets the broad-based fund criteria i.e. at least twenty investors with no investor holding more than forty-nine per cent of the shares or units of the fund as laid down in the Regulations. For this purpose, the DDP may take all the requisite steps including obtaining necessary declaration/s from the applicant. [Ref. Regulation 5(b)]
Q7: How can the DDP determine whether an entity has been set up for the sole purpose of pooling funds and making investments?
The DDP may obtain suitable declaration from the FPI applicant. Further, the DDP may also obtain the prospectus or placement memorandum or an equivalent document containing necessary details such as objectives of the applicant, purpose of setting up the applicant etc. However, for the purpose of considering entities for pooling of funds, the DDP may also consider banks, pension funds, mutual funds, insurance and re-insurance companies to be investment pooling vehicles.[Ref. Regulation 5(b) Explanation 2]
Q8: How can the DDP verify whether applicant is legally permitted to invest in securities outside the country of its incorporation or establishment?
For this purpose, the DDP may take all requisite documents such as memorandum or articles including obtaining a declaration from the FPI applicant. For Category III non individual FPI applicant, supporting documents may be obtained in addition to the declaration.[Ref. Regulation 4(f)]
Q9: How can the DDP verify whether the applicant is authorized by its Memorandum of Association and Articles of Association or equivalent document(s) to invest?
For this purpose, the DDP may take all requisite steps including obtaining a declaration from the FPI applicant. [Ref. Regulation4(g)]
Q10: What are the indicative parameters based on which the applicant shall be considered as having sufficient experience, good track record, professionally competent, financially sound and having a generally good reputation of fairness and integrity?
The DDP shall be required to satisfy itself that applicant has sufficient experience, good track record, is professionally competent, is financially sound and has a generally good reputation of fairness and integrity. For this purpose, the DDP may take all requisite steps including obtaining a declaration from the applicant. Further, for Category III applicants, DDP may also advise them to furnish a certificate from its bank certifying that the applicant is having satisfactory banking relationship for more than a year. [Ref. Regulation 4(h)]
Q11: How can the DDP verify if the grant of certificate as FPI to the applicant is in the interest of the development of the securities market?
The DDP shall be required to satisfy itself that the grant of certificate as FPI to the applicant is in the interest of the development of the securities market. For this purpose, the DDP may take all requisite steps including obtaining a declaration from the FPI applicant confirming that it has not been restricted or constrained by local regulators / court order / etc. from investing in its home country and or overseas. The DDP may also perform a check for any such orders as may be available on public websites. Additionally, the applicant shall not be convicted for money laundering related offences and shall not belong to a country which is listed in public statement issued by FATF. [Ref. Regulation 4(i)]
Q12 What procedures should the DDP adhere to, to determine if the FPI is a ‘fit and proper person’?
The DDP shall be required to satisfy itself that the FPI is a ‘fit and proper person’ as per Schedule II of the SEBI (Intermediaries) Regulations, 2008. For this purpose, the DDP may take all requisite steps including obtaining a declaration from the FPI applicant. [Ref. Regulation 4(j)]
Q13: Is it necessary for the DDP to complete KYC process before grant of registration to the new FPI applicant?
Yes.
Q14: Can a DDP consider an FPI application which has been previously rejected by another DDP?
Before considering such an application, the DDP shall ascertain the reasons for which the application was rejected. In case the application was rejected on technical grounds, the DDP shall ensure that such deficiencies have been rectified by the applicant, before assessing the application afresh on its own merits. If the application has been rejected for any other reason, then the DDP shall assess the application on its own merit as per FPI Regulations.
Q15. How will a DDP know whether the applicant’s registration application was rejected by some other DDP and what were the reasons for such rejection?
The depositories (NSDL and CDSL) will maintain a database of FPI applicants. Every DDP shall input the details of FPI applicants in the database as soon as received. Where an FPI application is rejected by a DDP, the DDP shall mention the reason for such rejection in the database, which would be accessible to all DDPs. [Ref. Regulation 8 and 9]
Q16: How will a DDP ensure that equity shares held by FPIs are free from all encumbrances?
The DDP shall be required to satisfy itself that the equity shares held by an FPI are free from all encumbrances. For this purpose, the DDP may take all requisite steps including obtaining a declaration from the FPI applicant. [Ref. Regulation 32(2)(d)]
Q18: How can the DDP ascertain that the FPI applicant does not have opaque structure(s)?
In this regard, the DDP may be guided by SEBI circular ref. no. CIR/IMD/FIIC/1/ 2010 dated April 15, 2010 as well as SEBI Circular No.CIR/IMD/FIIC/21/ 2013 dated December 19, 2013. [Ref. Regulation 32(1)(f)]
Q19: Does every fund / sub fund / share class need to separately fulfil broad based criteria? Is prior approval required for launch of new share class from DDP?
Yes, every fund / sub fund / share class needs to separately fulfil broad based criteria, where segregated portfolio is maintained.In case of addition of classes of shares, the FPI shall be required to obtain prior approval from DDP. For granting of such prior approval, DDPs shall obtain following documents from the FPI applicant:A declaration and undertaking with respect to PCC, MCV status as specified in SEBI circular ref. no. CIR/IMD/FIIC/1/ 2010 dated April 15, 2010 .In cases where segregated portfolios are maintained,
- Where the newly added share class is already broad based, the FPI will continue to be considered as being broad based.
- Where the newly added share class is not broad based, then an undertaking is to be obtained by the DDP that the newly added share class will become broad based within 90 days from the date of DDP approval letter.
- In case of simultaneous addition of more than one share class, which are not broad based, then an undertaking is to be obtained by the DDP that all the newly added share classes will become broad based within 15 days from the date of DDP approval letter.
Q20: The FPI regulations state that the DDP shall preserve the books of accounts, records and documents specified in this regulation at all times. Is the DDP required to maintain all registration related documentation, all transaction details, etc. perma
All records relating to registration of FPIs are to be maintained at all times by a DDP. For other records relating to transaction, KYC etc., the DDP shall be guided by PMLA/circulars issued by SEBI from time to time. [Ref. Regulation 33(1)]
Q21: What is the manner of remittance of fees to SEBI by DDPs?
Fees collected by DDPs from the FPI applicants during the immediate preceding month shall be remitted to SEBI electronically, by 5th working day of every month, along with the details in the format, as may be prescribed by SEBI from time to time.[Ref. Regulation 3 and Regulation 7(3)]
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