Extend easier FPI compliance norms by three months, custodians tell Sebi

Sebi had allowed custodians to furnish scanned documents instead of originals for FPI registrations in the backdrop of the pandemic. The relaxation was given till June 30 and later extended to Aug 31

A number of custodians have written to the Securities and Exchange Board of India (Sebi), seeking an extension of easier compliance norms for FPI (foreign portfolio investors) registrations by another three months. 

Earlier this year, the regulator had allowed custodians to furnish scanned documents instead of originals for FPI registrations because of the pandemic. The relaxation was given till June 30 and later extended to August 31. 

Several countries, including the US, Singapore, and Australia continue to reel under the impact of the pandemic and have imposed fresh lockdowns. Most custodians in Mumbai are also adopting the policy of work from home, hampering their ability to access all the required documents. According to the earlier circular, custodians were allowed to process requests for registration, continuance, KYC review and any other material change on the basis of scanned version of signed documents (instead of originals) and copies of documents that were not certified or received from email IDs of their global custodians’ existing clients. 

“Intermediaries should undertake necessary due diligence, including that required for regulatory and risk-based approach towards compliance with AML requirements while processing these documents based on scan copy," the Sebi circular had noted. More importantly, all originals and certified documents were required to be submitted within a month of the expiry of the relaxation deadline, failing which accounts of FPIs could be blocked for fresh purchase. The custodians now want this period to be extended by two months (from November 30). 

The pandemic took a toll on FPI registrations in the June quarter (Q1) as work from home, volatility in stock markets worldwide, and redemption pressures prompted investors to defer new investment plans. New monthly registrations averaged over 100 till April, before dipping to 40 in Q1. FPI net equity flows have been resilient with net inflows of Rs 50,000 crore so far in August following inflows of Rs 29,000 crore in the previous two months. 

“FPI inflows have been resilient in the last few months... More inflows are likely to happen thanks to capital raising by large private banks and also owing to a weaker US dollar outlook,” said Jitendra Gohil, head of India Equity Research, Credit Suisse Wealth Management. He added that earnings have been better than expected but valuations had become expensive even for mid-cap companies. Equity valuations could remain elevated, with major central ban­ks keeping near-zero interest rates.  

“While the valuation is expensive, the Indian equity market may remain well supported due to several factors like better-than-expected earnings, low interest rate environment, and hopes of a vaccine,” Gohil said.