By an Order of the India’s Ministry of Finance of 13 April 2020, the Central Government specifies Mauritius as an eligible country for the purposes of the SEBI (Foreign Portfolio Investors) Regulations 2019. It entitles a Mauritius foreign portfolio investor to apply for a Category 1 FPI Licence and gives implicit recognition to Mauritius entities as being appropriately regulated.
This Order dispels much of the grave concern arising from the February 2020 decision of the Financial Action Task Force (the “FATF”) placing Mauritius on the list of “jurisdictions under increased monitoring.” There have been significant questions raised by this surprising announcement which was addressed in our previous FAQ (https://www.axis.mu/newsroom/the-inclusion-of-mauritius-on-the-list-of-jurisdictions-under-increased-monitoring-more-fear-than-harm/). Of the most significant concerns was the alarm raised among fund managers and investors interested in the Indian market to the implication of the FATF designation on the eligibility of Mauritius entities to apply for a FPI Licence under the SEBI (Foreign Portfolio Investors) Regulations adopted in September 2019. An amendment made by SEBI to the 2019 FPI Regulations on 7th April 2020 paved the way for the Ministerial Order (https://www.sebi.gov.in/legal/regulations/apr-2020/sebi-foreign-portfolio-investors-amendment-regulations-2020_46504.html) .
It is no secret that Mauritius is one of the largest investors in India. One source indicates that in 2019 the foreign direct investment contribution of Mauritius in India, was greater than that of the United States, Japan and Netherlands. The sheer magnitude of these investments gives the measure of the staggering impact of the FATF decision.
It is recalled that in September 2019, the SEBI streamlined the regime for FPI’s in a bid to attract further foreign investments, clubbed the previous three categories into two, and simplified the application procedures. Of particular interest, are the advantages flowing from a Category 1 FPI: eligibility to issue Offshore Derivative Instrument (ODI’s), that is to say instruments which are issued overseas by a FPI against securities held by it which are listed or are to be listed on a stock exchange in India, eligibility to tax benefits for indirect share transfer, ease of compliance with certain know-your-client (KYC) norms as compared to Category II FPI’s; and enhanced position limits in case of stock and currency derivatives. However, one of the essential conditions of eligibility to Category I FPI was membership of the FATF, which has always refused membership to Mauritius. Interestingly, the 2019 SEBI Regulations also did away with the broad-base criterion for qualification and admits now the registration of sub-funds or separate classes of shares or such structures as Protected Cell Companies.
This Order emanating from the Department of Economic Affairs, Ministry of Finance, comes to the rescue of existing Mauritius-based FPI’s a and paves the way for future investment funds established in Mauritius to hold portfolio investment in Indian securities. Mauritius entities which were under the 2014 SEBI FPI regulations licensed as category I or category II can apply to keep their licence category with the accrued privileges and advantages. However the custodians will retain their discretion to make their own assessment of the jurisdiction and decide whether to consider it as a high-risk jurisdiction or not. Some communication work may have to be undertaken with custodians and depositories in India to bring to their knowledge the spate of reforms carried out by the Mauritius Government to meet all the norms of the FATF and the reforms of its regulatory and supervisory framework emphasizing substance as the cornerstone of cross border transactional structures.
BLC Robert together with its affiliated firm, Axis Fiduciary, a leading licensed provider of fund administration and accounting services in Mauritius, act for a number of leading India-Focused Funds and Fund Managers. Together, we are able to provide bespoke and creative solutions to complex situations, complemented by fast turnaround times and a cost-effective offering, to provide a truly global and relationship-led service. Please contact us should you wish to discuss the impact of the above Order on your existing structures or should you need more information on our range of services.
This article should not be construed as legal advice and is made for information purposes only. Should you require legal advice on AML/CFT related matters, please contact info@axis.mu.
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