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Summary of SEBI Circular SEBI/HO/AFD/AFD-PoD-3/P/CIR/2024/130:
Introduction to FVCI Regulations Amendments:
SEBI recently amended the Foreign Venture Capital Investors (FVCI) Regulations of 2000, effective from January 01, 2025. The changes, notified on September 05, 2024, aim to update the operational framework for FVCIs and their registration processes through Designated Depository Participants (DDPs).
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Key Amendments in FVCI Regulations:
The amendment notification outlines crucial revisions that include:
- Registration Process: FVCIs must now register through Designated Depository Participants (DDPs).
- Eligibility Criteria: Revised eligibility conditions for FVCIs, ensuring stricter compliance with updated norms.
- Renewal Process: The procedure for renewing FVCI registration has been updated for easier operational flow.
Smooth Transition and Operational Guidelines:
To facilitate a seamless transition to the new regime, SEBI has issued operational guidelines detailed in Annexure-1 of the circular. These guidelines aim to ensure clarity in implementing the amendments and avoid disruptions to the FVCI registration and functioning.
Enforcement Date: The new guidelines will officially come into effect on January 01, 2025, providing sufficient time for FVCIs and DDPs to adapt to the updated rules.
Legal Framework: This circular was issued under Section 11(1) of the SEBI Act, 1992, and the FVCI Regulations (specifically Regulations 3, 8, 9, 10, and 15). It underscores SEBI's role in protecting investors, promoting market development, and regulating the securities market in India.
Accessing the Circular: The circular, including detailed operational guidelines, can be accessed on SEBI’s official website under the “Legal ---Circulars” section.
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Key Points to Remember for NISM Exams:
- Amendment Notification: SEBI amended the Foreign Venture Capital Investors (FVCI) Regulations, 2000, with effect from January 01, 2025.
- DDP Registration: FVCIs must now register through Designated Depository Participants (DDPs) to streamline compliance.
- Eligibility and Renewal: The circular introduces updated eligibility criteria and a new renewal process for FVCI registrations.
- Operational Guidelines: Detailed guidelines in Annexure-1 provide clarity on how FVCIs and DDPs should transition to the new system.
- Enforcement Authority: SEBI issued the circular under its legal authority from the SEBI Act, 1992, and FVCI Regulations to protect investors and regulate the market.
Annexure-1 Summary:
Chapter 1: Operational Guidelines for Foreign Venture Capital Investors (FVCIs)
DDP Engagement for Existing FVCIs
- Existing FVCIs must engage a Designated Depository Participant (DDP) by March 31, 2025, for due diligence and registration continuation.
- Failure to engage results in liquidation of investments by March 31, 2026 (for listed securities) and March 31, 2027 (for other investments).
Compliance and Eligibility
- DDP will assess if the FVCI meets eligibility within 6 months of engagement.
- FVCIs failing to meet criteria cannot make new investments but can maintain or sell current investments. If no investments are held, the FVCI must surrender its registration.
- FVCIs linked to individuals/entities on the UN Security Council Sanctions List or failing the 'fit and proper' test will have transactions halted and SEBI notified.
FVCI Registration Process
- FVCI applicants must submit applications to the DDP, which performs country, regulatory, and eligibility checks.
- DDP must verify the applicant's residency and beneficial owners in line with the FATF and SEBI agreements.
- DDPs must confirm the applicant is 'fit and proper' and perform due diligence to verify regulatory standing.
Renewal and Continuation
- FVCIs registered before December 31, 2019, must pay renewal fees by March 31, 2025, and continue renewing every five years. Failure to renew on time incurs a late fee.
- FVCIs that fail to renew their registration must liquidate investments in listed securities within 1 year and other investments within 2 years.
Data and Reporting
- DDPs can request FVCI data from SEBI.
- Monthly reports must be submitted by DDPs to SEBI on FVCI registrations and fees collected.
Name Changes and Surrender
- FVCIs changing names must submit documents for certification to DDPs. The DDP will update the registration and issue new certificates.
- For surrendering registration, DDPs must ensure the FVCI’s accounts are clear of balances and blocked from further transactions before processing.
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Chapter 2 – Know Your Client (KYC) Requirements for FVCIs
1. KYC Process:
- Foreign Venture Capital Investors (FVCIs) must provide KYC documents to intermediaries.
- Intermediaries upload KYC details on the KYC Registration Agency (KRA) portal.
- Intermediaries may require additional documents for enhanced due diligence based on internal policies.
2. KYC Documentation Requirements:
- FVCIs must provide key documents, including Constitutive Docs, Proof of Address, PAN, Board Resolution, FATCA/CRS form, and details of Ultimate Beneficial Owners (UBO).
- FVCIs can provide Power of Attorney (PoA) instead of Board Resolution.
- UBOs are not required for government entities.
- Intermediaries can rely on KYC done by other regulated entities from FATF member countries.
3. Sharing KYC Documents with Banks:
- Intermediaries are responsible for transferring KYC documents to banks for opening FVCI accounts.
- Documents must be verified and certified.
4. Identification & Verification of Beneficial Owners (BO):
- BOs must be identified based on ownership or control, applying materiality thresholds.
- Details of intermediate shareholders or owner entities must be disclosed.
5. Periodic KYC Review:
- KYC records must be periodically updated by intermediaries.
- FVCIs must confirm if there are changes in the previously provided documents during KYC review.
6. Data Security:
- KRAs must secure the personal information of FVCI beneficial owners and senior managing officials (SMO).
- Access to KYC information should be on a "need to know" basis with OTP authentication.
7. Record Maintenance:
- Custodians must retain KYC records for five years after cessation of transactions with FVCI.
- Records should be maintained until litigation is completed if applicable.
8. KYC Guidelines:
- Documents must be accompanied by originals for verification or attested by authorized entities.
- Foreign documents must be translated into English.
- Global or Local Custodians can fill forms if authorized by Power of Attorney.
9. List of Supporting Documents:
- Proof of Address can include documents issued by government authorities, utility bills (less than 2 months old), or notarized Power of Attorney.
- Constitutive documents can serve as proof of residency for multilateral organizations.
KYC Requirements for FVCIs
1. KYC Process
FVCIs are required to submit KYC documents to intermediaries. These documents are uploaded to the KYC Registration Agencies (KRA) portal, making them accessible to other intermediaries for fulfilling their KYC obligations. Intermediaries may also request additional documents as part of enhanced due diligence.
2. Documentation Required
FVCIs need to submit various documents including constitutive documents (MoA, CoI), Proof of Address, PAN, Board Resolution or Power of Attorney, FATCA/CRS forms, and details of the Ultimate Beneficial Owners (UBOs). Power of Attorney is accepted in lieu of some documents like Board Resolution.
3. Sharing KYC Documents with Banks
Intermediaries are required to share relevant KYC documents with banks to facilitate the opening of accounts for FVCIs. These documents must be verified and transferred securely, with a record of their movement maintained.
4. Identification and Verification of Beneficial Owners (BO)
The identification of BOs follows Rule 9 of the Prevention of Money Laundering (PML) Rules. For entities structured as General Partnerships or Limited Partnerships, the BO is identified based on ownership and control. The materiality threshold applies at multiple levels of ownership to ensure thorough identification.
5. Periodic KYC Reviews
Periodic reviews are essential to keep KYC documents up-to-date. Intermediaries must verify whether any changes have occurred and collect updated documents from the FVCI if necessary.
6. Data Security
KRAs must ensure the secure handling of personal information, which is only shared on a need-to-know basis. Consent mechanisms and email authentication are used to manage the sharing of KYC information with intermediaries.
7. Record Maintenance
Custodians are required to maintain original KYC documents for at least five years after the cessation of transactions with the FVCI. These records must be kept longer if litigation is pending.
