SEBI plans to tighten security on FPIs with China links: Report

Securities and Exchange Board of India (Sebi) is reportedly tightening scrutiny on foreign portfolio investors (FPIs) with China links. The market regulator floated a consultation paper regarding the proposal to divide FPIs into two categories. 

According to Moneycontrol, SEBI’s consultation paper proposed categorising FPIs into those where majority ownership is by investors from Land Bordering Countries (LBCs) and those where more than 50 per cent is owned by what the paper refers to non-LBCs.

This is expected to result in greater monitoring of China and Hong Kong-based investors, who frequently use Singapore and Mauritius structures to enter India through the FPI route, the report added. Many global investment managers have reportedly created Singapore or Mauritius-based FPI vehicles for the Chinese to invest in India.

Unlike most of FPI compliance documentation that is based on declarations given by the funds to custodians, SBI now wants depository participants to verify the filings made by FPIs with regards to China. 

Being labelled as LBC FPI would put the fund on a special monitoring list.

The report added that this move is expected to put a check on regulatory arbitrage available for Chinese investors. On the other hand, Foreign Direct Investment (FDI) requires prior approval for investments in unlisted companies. 

The consultation paper added that the proposal intends to ensure that China-based investors don’t use FPI to circumvent FDI restrictions.