The Securities and Exchange Board of India (SEBI) has revised the definition of a Qualified Foreign Investor (QFI), which will now mean a person who fulfills the following criteria:
(i) Is a resident of a country that is a member of Financial Action Task Force (FATF) or a member of a group which is a member of FATF; and
(ii) Is a resident of a country that is a signatory to IOSCO’s MMOU or a signatory of a bilateral MOU with SEBI.
However, a person will not be considered to be a QFI is he/she is resident of a country listed in the public statements issued by FATF on-
a) jurisdictions having a strategic Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) deficiencies to which counter measures apply.
b) jurisdictions that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies.
Further, such a person should neither be a resident of India and nor be registered with SEBI as Foreign Institutional Investor (FII) or Sub-account or Foreign Venture Capital (VC) Investor.
The regulator has also mandated that a clause 8.6.1, read as below will be introduced in the circular issued by it dated January 13, 2012:
“8.6.1. In case a person invests in the same company through both QFI route and FDI route, the aggregate holding of the person in such company shall not exceed 5% of paid up equity capital of the company at any point of time. This investment limit shall be applicable to each class of equity shares having separate and distinct ISIN. This shall be subject to guidelines on FDI as prescribed by GoI and RBI from time to time.”
The regulator has allowed QFIs to make fresh purchases of eligible securities (MF units under direct and indirect route, equities, corporate debt and other permitted securities) out of the sale/ redemption/ dividend proceeds of any of the eligible securities. The QFI will be required to hold all eligible securities in a single demat account.
A QFI can appoint a custodian of securities who will perform clearing and settlement of securities on behalf of the client. However, the custodian should itself be the qualified DP of the QFI and should also be registered as a custodian with the SEBI. A QFI will need to open a single non-interest bearing Rupee Account with an AD Category- I bank in India through which the receipt and payment for transactions of eligible securities will be routed. Thus, the qualified DP is not required to open and maintain a single rupee pool bank account anymore as all transactions will be undertaken through the aforementioned account.