The FATF is an inter-governmental body, established in 1989 by the ministers of its member jurisdictions
The Securities and Exchange Board of India (Sebi) on Tuesday said that foreign portfolio investors (FPIs) from Mauritius would continue to be eligible for FPI registration with increased monitoring as per Financial Action Task Force (FATF) norms. The clarification comes after market participants expressed their apprehensions about whether the inclusion of Mauritius in the grey list would affect the registration of FPIs from Mauritius.
The FATF is an inter-governmental body, established in 1989 by the ministers of its member jurisdictions. It monitors the progress of its members in implementing necessary measures, reviews money laundering and terrorist financing techniques and counter-measures, and promotes the adoption and implementation of appropriate measures globally.
On February 21, FATF had placed Mauritius in the list of ‘jurisdictions under increased monitoring’, which is commonly referred to as the grey list. The markets regulator explained that according to the FATF website when a jurisdiction is placed under increased monitoring, it construes that the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring.
“The FATF does not call for the application of enhanced due diligence to be applied to these jurisdictions, but encourages its members to take into account this information in their risk analysis. The intermediaries should take note of the same,” the markets regulator indicated.
Shruti Rajan, Partner, Cyril Amarchand Mangaldas pointed out given that Mauritius is now in a situation where they have to work with the FATF to pull themselves out of the grey list, there was a fair amount of apprehension on whether entities that were coming in from such jurisdictions would face any overnight impact on their ability to trade.
“Sebi has done well to be so quick footed and react in a timely manner to quell market rumours and provide clarity. Tomorrow, whether Mauritius is successful in de-escalating with the FATF only remains to be seen. So, funds may start planning for the long term and assess the viability of alternative jurisdictions,” Rajan said.
Mauritius is a tax haven used by FPIs to set up funds that bet on Indian stocks and bonds. As on January 2020, Mauritius is the second largest country with FPI/FII assets under custody (AUC) of `4.36 lakh crore after the United States, according to data on NSDL.
According to experts, new funds would definitely look at countries like Singapore or Cyprus going forward. However, to wrap up the existing operations and move away from Mauritius is not an easy job, according to Ananth Narayan, professor-finance at SPJIMR.
“One has to look at the existing positions and how do you manage the transitions. Because of this, not many FPIs will immediately shift. In the medium term though, not being a FATF registered country will be a problem. As it is, Mauritius, over a period of time, has become a less popular destination than it was,” Narayan said.