Mumbai: The Securities and Exchange Board of India (Sebi) on Tuesday defended its stance on new rules for foreign portfolio investors (FPIs), saying warnings of a capital flight were “preposterous" and “highly irresponsible."

Lobby group Asset Management Roundtable of India or Amri on Monday said the immediate impact of the new Sebi norms, if not amended, will be that $75 billion investment managed by overseas citizens of India (OCIs), persons of Indian origin (PIOs) and non-resident Indians (NRIs) will be disqualified from investing in India, and the funds will have to be withdrawn and liquidated within a short time frame.

Sebi reacted saying, “It is preposterous and highly irresponsible to claim that $75 billion of FPI investment will move out of the country because of Sebi’s circular issued in April 2018."

On 10 April, the market watchdog asked category II and III FPIs (not well-regulated in their countries of origin) to provide the list of their beneficial owners (BO) along with their identification and verification in a certain format within six months. Last month, it extended the deadline for the list of beneficial owners until December, and assured FPIs that issues raised by them will be examined by an expert panel.

FPIs were told to disclose BOs if the BO is a company with 25% or more controlling ownership, and 15% if the BO holds stake through a partnership in the company acting as the FPI. The threshold was stricter at 10% for “high-risk" nations with a history of money-laundering, terrorism and so on.

Sebi’s 10 April rules were framed in line with anti-money laundering norms.

Sebi had said that in case of companies or trusts represented by service providers like lawyers or accountants, FPIs should provide information of the real owners or effective controllers of those companies and trusts.

Sebi had said that if the BO exercises control through means like voting rights, agreements and arrangement, that should also be specified. Such BOs, it added, should not be from jurisdictions that are combating financing of terrorism deficiencies to which counter measures apply or those that have not made sufficient progress in addressing these deficiencies.

FPIs own securities worth at least $425 billion in Indian equities. Of this, NRIs have invested an around $75 billion through India-focused funds in which majority owners are FPIs.

Under the Prevention of Money Laundering Act, a BO is defined as “a natural person, or persons who, whether acting alone or acting together, has a controlling ownership interest in the FPI or control over the FPI". If a BO cannot be directly identified, the senior managing official of the FPI is assumed to be the BO.

The definition of “control" includes the right to appoint a majority of directors, or control of management or policy decisions by virtue of shareholding, management rights, shareholders’ agreements and/or voting agreements.

Amri on Monday said the new know-your-client rules will have severe impact on stocks and the rupee.

On 21 August, Sebi said existing FPIs will be provided a time-frame of six months to comply with the requirements stipulated therein.

On 26 March, Sebi had formed a working group under the chairmanship of former deputy governor of RBI, H.R. Khan to review the FPI rules. The panel will also look into the issues raised in the representations in relation to the circular dated 10 April, 2018, Sebi said on 21 August.

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