HDFC Bank, HSBC, Citi Bank, Deutsche Bank settle with SEBI over FPI rules violations

Four major banks, namely HDFC Bank, HSBC, Citi Bank, and Deutsche Bank AG, have reached a settlement with the Securities and Exchange Board of India (SEBI) regarding allegations of non-compliance with eligibility criteria outlined in the Foreign Portfolio Investors rules.

In total, these institutions have paid a sum of Rs 39.36 lakh as settlement charges. Specifically, Deutsche Bank AG contributed Rs 11.05 lakh, the Hongkong and Shanghai Banking Corporation Ltd paid Rs 10.87 lakh, HDFC Bank remitted Rs 9.18 lakh, and Citi Bank NA paid Rs 8.25 lakh towards the settlement.

This resolution follows the submission of four settlement applications by the concerned parties, proposing to resolve the matter without accepting or denying the findings of fact and conclusions of law, through a settlement order.

SEBI's Adjudicating Officer, Amar Navlani, confirmed the closure of the adjudication proceedings initiated against the aforementioned banks through a settlement order, as per the Settlement Regulations.

The regulatory action stemmed from SEBI's observation, as of October 5, 2021, that certain registered Foreign Portfolio Investors (FPIs) from Manitoba were ineligible for registration or renewal according to FPI norms.

Following this observation, SEBI requested explanations and details from all Designated Depository Participants (DDPs) regarding the registered FPIs who failed to meet the eligibility criteria. Upon review of the information provided by the depository participants by October 14, 2021, SEBI noted that DDPs including Deutsche Bank AG, the Hongkong and Shanghai Banking Corporation, and Citi Bank had facilitated registration or renewal for FPIs that were ineligible as per FPI rules.

Additionally, HDFC Bank allowed an ineligible FPI to engage in transactions within the Indian securities market, contrary to the SEBI (FPI) regulations, 2019.

Consequently, adjudication proceedings were initiated against the concerned entities. A common Show Cause Notice was issued by SEBI on June 19, 2023, alleging violations of norms.

Subsequently, the banks filed settlement applications with SEBI, which recommended resolving the matter through payment of Rs 39.36 lakh. Following this recommendation, the banks settled the case by remitting the agreed amount.