The Securities and Exchange Board of India (Sebi) has made it easier for overseas investors to invest in India by accepting the recommendations of the Chandrasekhar panel, but according to market participants, the role and responsibilities assigned to the designated depository participants (DDPs) could pose a problems.
According to persons familiar with the regulatory framework, entities that intend to function as DDPs may be wary of the many checks and balances introduced to monitor investments made by foreign investors, along with stringent KYC norms that have been listed as their area of responsibility.
?The earlier proposed structure of qualified foreign investors (QFIs) also failed to take off as qualified depository participants (QDPs) were made responsible for the tax liabilities of the overseas investors, apart from various other administrative requirements,? said an industry source on conditions of anonymity. ?DDPs would ideally want Sebi to share some of the regulatory responsibilities related to filings and disclosures,? he added.
Last month, Sebi accepted the recommendations of the Chandrasekhar committee, which proposed merging foreign institutional investors (FIIs), sub-accounts and qualified foreign investors (QFIs) into a new investor class to be termed as foreign portfolio investors (FPIs).
The committee, in its report, has stated that ?investment classification and tracking could be accomplished through the DDPs?, which means that such entities would have to report whether a specific investment is FDI or FPI. Incidentally, the regulator has decided to do away with the requirement of prior registration for FIIs and sub-accounts while assigning Sebi-authorised DDPs the duties of registering FPIs subject to compliance with the Know Your Customer (KYC) requirements.
DDPs have also been given the job of monitoring the ?investment limits at the individual level? apart from performing due diligence and KYC before registering the FPI on behalf of Sebi.? The settlement of transactions by FPIs will also have to be done through DDPs acting as a custodian, according to the panel report. Further, in the case of any penalty, pending litigation or proceedings initiated by any overseas regulator against the FPI, the designated DP will have to submit the information to Sebi, depositories and stock exchanges.
