INSITE - India - March 2024

SEBI CIRCULAR 2024: AMENDMENTS TO FPI DISCLOSURE REQUIREMENTS

Summary: The Securities and Exchange Board of India (SEBI), the market regulator, released a circular, numbered SEBI/HO/AFD/AFD-POD-2/P/CIR/2024/19 on March 20, 2024, altering the disclosure rules for Foreign Portfolio Investors (FPIs). This circular explores the changes and their effects.

In Detail: The circular updates the extra disclosure requirements for FPIs that fulfill certain criteria. It introduces a new rule exempting FPIs with more than 50% of their Indian equity Assets Under Management (AUM) in a corporate group from certain disclosure obligations. However, this exemption depends on strict adherence to conditions detailed in the circular.

Moreover, the circular lays down conditions regarding the primary company of such corporate groups, stipulating that it should have no identified promoter. It sets restrictions on FPI ownership within the corporate group and mandates the monitoring of cumulative FPIs ownership in the primary company.

Furthermore, it outlines procedures for monitoring the use of limits for primary companies lacking identified promoters and specifies actions to take if these limits are reached or exceeded. FPIs that fail to meet the criteria must adjust their investments or provide additional disclosures within a set timeframe. The circular also clarifies disclosure requirements for FPIs meeting specific criteria but failing to adjust their portfolios within the prescribed time. Those meeting the conditions outlined in the circular will not face penalties for non-disclosure.

The Custodians and Designated Depository Participants Standards Setting Forum (CDSSF) will collaborate with SEBI to develop the implementation process for the circular, ensuring consistent adoption across the industry.

Conclusion: This circular brings important changes to FPIs disclosure rules, aiming to improve transparency and regulatory adherence. These updates clarify exemptions and procedures, creating a better environment for foreign investment while protecting investors and market integrity. Stakeholders will also need to follow these updated rules closely to ensure smooth compliance and to support SEBI's goals.

Key Links: SEBI | Amendment to Circular for mandating additional disclosures by FPIs that fulfil certain objective criteria

SEBI INTRODUCES SAFEGUARDS FOR INVESTORS REGARDING DEMAT SECURITIES TRANSFER

Summary: The SEBI has released a circular SEBI/HO/MRD/MRD-PoD-2/P/CIR/2024/18 on March 20, 2024 to address investor concerns regarding dematerialized (demat) securities transfer. This measure aims to prevent fraud through the transfer of shares from dormant demat accounts.

In Detail: As part of these measures, SEBI has banned the use of pre-signed blank depository instruction slips. Additionally, new slips will only be issued upon expiry or loss of the old one.

Furthermore, SEBI clarified that transfers from inactive demat accounts will require verification by the share owner.

Under the new rules, demat holders can only receive up to 10 instruction slips per year.

Key Points:

Protecting Investors: The circular stresses the importance of educating investors about safely handling Delivery Instruction Slips (DIS) to prevent unauthorised transfers of securities from their accounts.

Preventing Fraud: Depository Participants (DPs) are banned from accepting DIS pre-signed by account holders with blank sections. If a DIS booklet is lost, stolen, or untraceable, account holders must promptly inform the DP to cancel unused DIS and issue a new booklet upon request.

Verification Procedures: DPs must verify account holder signatures and, in exceptional cases, cross-check with them before processing DIS requests. For inactive accounts, DPs must verify via recorded phone calls before transferring securities.

Limiting Loose DIS: DPs cannot issue more than 10 loose DISs to one account holder per financial year. Strict verification measures are in place for issuing loose DIS.

Conclusion: SEBI's circular introduces important changes to improve the security of dematerialized securities transfers. With stricter safeguards like signature verification and fewer loose DISs, the aim is to reduce fraud risk and protect investors. These actions demonstrate SEBI's dedication to maintaining market integrity and boosting investor trust. It's crucial for depositories and DPs to swiftly adopt these changes to safeguard investor interests effectively.

Key Links: SEBI | Safeguards to address the concerns of the investors on transfer of securities in dematerialized mode 

SIMPLIFIED OFFER DOCUMENTS FOR MUTUAL FUND SCHEMES: TIMELINE EXTENDED

Summary: SEBI has issued a recent circular, SEBI/HO/IM D/IMD-RAC-2/P/CIR/2024/000015, dated March 12, 2024, focusing on simplifying and streamlining Offer Documents for Mutual Fund Schemes. This circular introduces important changes to the guidelines.

In Detail:

Background and Previous Circular: The SEBI previously introduced a simplified format for Scheme Information Documents (SID) through circular SEBI/H0/IMD/IMD-RAC-2/P/CIR/2023/00175 dated November 01, 2023.

Revised Timeline: Following a request from the Association of Mutual Funds in India (AMFI), SEBI has decided to revise the implementation date of the updated Scheme Information Documents (SID)/ Key Information Memorandums (KIM)/Statement of Additional Information (SAI) format. The revised timeline stipulates that the new format will be effective from June 01, 2024. Mutual fund companies are required to file draft SIDs with SEBI by May 31, 2024. Additionally, existing SIDs can continue to be used in their current format until June 30, 2024, provided necessary updates are made.

Extension for SID and KIM Updation: The circular extends the deadline for the updating of SID and KIM until June 30, 2024. Specifically, this extension applies to the scheduled updation of SIDs and KIMs for the half-year ended March 31, 2024. This extension offers mutual fund companies additional time to ensure compliance with regulatory requirements and incorporate relevant information for investors.

Regulatory Authority and Purpose: SEBI issues this circular under the powers conferred by Section 11(1) of the Securities and Exchange Board of India Act, 1992, read with Regulation 77 of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996. The primary objective is to protect the interests of investors and regulate the development of the securities market. By standardizing and simplifying the disclosure framework for mutual fund schemes, SEBI aims to enhance transparency, facilitate informed decision-making by investors, and promote market integrity.

Conclusion: This circular introduces changes to the timeline for implementing simplified Mutual Fund SID. Mutual Funds, Asset Management Companies, Trustee Companies, and the Association of Mutual Funds in India must follow the updated guidelines. This extension aims to facilitate a smoother transition and ensure consistent compliance throughout the industry, protecting investors' interests in the securities market. All stakeholders are encouraged to remain informed and promptly update their documents according to the new deadlines.

Key Links: SEBI | Simplification and streamlining of Offer Documents of Mutual Fund Schemes - Extension of timelines