Demand of overseas regulators for local registration in respective countries biggest hurdle
With the ambitious qualified foreign investor (QFI) framework proving to be a non-starter of sorts, Indian policymakers have decided to clear the hurdles with their US counterparts. An Indo-US dialogue has been scheduled for March, which will help both regulators to iron out issues acting as roadblocks to the QFI initiative.
According to a senior government official, the meeting will be attended by senior officials from the Securities and Exchange Board of India (Sebi), the Securities and Exchange Commission (SEC) and bureaucrats of both countries.
?An Indian delegation will be meeting US officials in March and issues related to QFI have been included in the agenda,? said an official from the finance ministry. ?It is well known that QFI initiative has been a non-starter and we believe that some of the requirements of overseas regulators are acting as a roadblock. If those issues are sorted out, then we can expect QFI structure to take off,? he said.
Market players say any such move by the Indian government or the regulator would come as a boon to a number of Indian financial intermediaries (including mutual funds, wealth managers and private equity players) that have offshore offices to attract institutional and retail money into the domestic capital markets.
Sebi first introduced the concept of QFIs in August 2011. A QFI investor could be any individual, group or association resident in a foreign country that is compliant with Financial Action Task Force (FATF) standards. QFIs, however, do not include FIIs/sub accounts.
Sources say that one of the main concerns among Indian market participants while attracting QFIs is the demand of overseas regulators for local registration in their respective countries. It is believed that this has acted as a deterrent for many Indian entities to venture overseas.
Interestingly, in November 2012, SEC had penalised four Indian brokerages ? Ambit Capital, JM Financial, Edelweiss Financial Services & Motilal Oswal Securities ? for offering brokerage services
to institutional investors in the US without registering with the US regulator. The four entities collectively paid a fine of over $1.8 million.
Last year also saw UAE’s Securities & Commodities Authority (SCA) directing that all investment advisors need to seek its approval before selling a product in the West Asian country. Meanwhile, Sebi has already said that it would initiate steps to enter into bilateral memorandums of understanding (MoUs) with regulators to attract more QFIs.
According to MoF, there are currently 45 countries, which are eligible to invest under the QFI framework.
?With respect to the restrictions imposed by certain jurisdictions towards Indian intermediaries, Sebi would take up such issues proactively with the regulators of such jurisdictions, wherever appropriate, to exempt registered Indian intermediaries from any additional registration requirements for soliciting business from qualified residents in foreign jurisdictions,? stated a Sebi document released in October 2012.
