SEBI changes rules for registration of foreign venture capital investors

Market regulator SEBI has announced new regulations to streamline the framework for registration of foreign venture capital investors (FVCI)

A foreign venture capital investor or global custodian acting on behalf of FVCI should enter into an agreement with the DDP and the custodian prior to making any investment

SEBI has also made additions to the eligibility criteria for FVCI, under which the applicant can be Resident Indian (RI), Non-Resident Indian (NRI) and Overseas Citizens of India (OCI).

Market regulator Securities and Exchange Board of India (SEBI) has announced new rules to streamline the framework for registration of foreign venture capital investors (FVCIs).

According to the PTI report, the process of registration of FVCI and processing of other information required after registration has been transferred to Designated Depositary Participants (DDPs) in accordance with the regulations applicable to foreign portfolio investors (FPIs).

As stated in the report, an applicant seeking registration as an FVCI is required to engage a DDP to use its services to obtain a registration certificate as an FVCI, and the DDP and the FVCI custodian must always be the same entity.

SEBI is currently involved in processing FVCI registration applications and conducting related due diligence checks.

“No person shall buy, sell or otherwise deal in securities as a foreign venture capital investor unless he has obtained a certificate issued by the designated depository participant on behalf of the Board (SEBI),” the report quoted a SEBI notification issued on September 6.

The notification also mentioned that “a foreign venture capital investor or a global custodian acting on behalf of a foreign venture capital investor must enter into an agreement with the designated depositary participant and the depositary before making any investment under these regulations.”

The market regulator has also made extensions to the eligibility criteria for FVCI under which the applicant can be Resident Indians (RIs), Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs).

This is subject to certain conditions such as: the contribution of an individual NRI/OCI/RI must be less than 25% of the total contribution in the applicant’s fund; the aggregate contribution made by them must be less than 50% of the total contribution in the applicant’s fund; and they must not exercise control over the applicant, as mentioned in the SEBI notification.

This comes at a time when foreign investors are interested in the potential of the Indian market and domestic companies are counting on pooling new capital for business expansion.

For example Jio Financial Services received the decision of the Department of Economic Affairs at the Ministry of Finance to raise the foreign investment limit to 49%, issued a few weeks ago.

In June, SEBI allowed Up to 100% of the aggregate contribution made by Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs) and Resident Indians in an International Financial Services Centre (IFSC) based FPI.

In April, the statutory body also changed its rules regarding liquidation after several limited partners approached the regulator about funds delaying the closure of funds beyond those extensions.