MAURITIUS and CAYMAN ISLANDS: India Regulators Bar Portfolios Based in Both Places.

As published on internationalinvestment.net on Wednesday October 9, 2019.


The Securities and Exchange Board of India (SEBI) has limited the participation of foreign portfolio investors (FPI) in India's investment market to only those based in Financial Action Task Force countries , which excludes Mauritius and the Cayman Islands.

The the new rules announced by the market regulator  are likely to severely impact foreign funds from the jurisdictions which do not belong to the 39-member club of Financial Action Task Force. Only FPIs located in Financial Action Task Force countries will be allowed to deal in participatory notes.

Financial centres like Mauritius, Cayman Islands and Cyprus are not FATF members. The FATF is an intergovernmental policy-making body that was established at the 1989 Paris summit of G7 amid mounting concerns over money laundering.

For foreign investors looking to do business in India, Mauritius has been the preferred choice for over a decade.
The African island nation is the main provider of foreign direct investment (FDI) to India and also the number one jurisdiction for Indian outward investments into Africa. Between 2001 and 2011, 39.6% of FDI coming into India, originated in Mauritius.

Under the new operating guidelines, SEBI will highlight whether there would be other restrictions as well on funds from non-FATF countries. It would include the extent to which non-FATF funds will be required to disclose their beneficial ownership; whether these funds would be recognised as ‘institutional investors' that are allowed to invest in public security offerings and current contracts; and whether these funds would be impacted by a tax on indirect transfers, according to local media.

Offshore funds floated by Indian fund houses will be permitted to invest in the domestic markets under the FPI route, and be required to obtain registration as an FPI within 180 days from the date of notification of the regulations. Transactions between multi-manager investment structures with the same beneficial owner and a common PAN, have been allowed.

"The new regulations will help ease some pain FPIs faced in the past and bring in new entities to India," Suresh Swamy, partner at PwC India told Business Standard.

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