The Securities and Exchange Board of India (Sebi) has introduced new regulations for Foreign Venture Capital Investors (FVCIs), aligning their framework with that of Foreign Portfolio Investors (FPIs). This significant update, announced on September 5, aims to enhance the registration and governance processes for FVCIs, promoting a more equitable environment.
Under these revised guidelines, FVCIs are now required to assign the registration and governance responsibilities to designated depository participants (DDPs), mirroring the existing structure for FPIs. Additionally, they must disclose beneficial ownership information in compliance with the Prevention of Money Laundering Act (PMLA).
These regulatory changes encompass various aspects such as registration procedures, eligibility criteria, application protocols, cost rationalization for registrations, and the introduction of renewal fees. Previously managed directly by Sebi, the registration process will now be overseen by DDPs.
The implementation date for these modifications is set for January 1, 2025. Gazal Rawal from Cyril Amarchand Mangaldas noted that since these requirements are not yet active and considering that consultations began over a year ago, stakeholders—including both new and existing FVCIs—will have ample time to adapt to these regulatory expectations.
Rawal also pointed out that while this shift may increase compliance demands on DDPs amid ongoing regulatory transformations, it ultimately aims to bolster governance standards and transparency within the sector.
Streamlining Application Processes
In addition to these changes, there are plans to simplify the application process further. Similar to FPIs’ procedures, FVCI registrations will involve a unified form covering PAN allotment as well as Know Your Customer (KYC) requirements necessary for opening bank accounts and demat accounts.
Legal analysts suggest that this move reflects Sebi’s strategy of replicating its successful delegation model used with FPIs. Ritul Sarraf from Nishith Desai Associates highlighted new concepts introduced in this framework—such as notifying DDPs about significant information changes—and emphasized how they align with Sebi’s broader goal of minimizing direct involvement in intermediary operations while focusing on policy formulation and oversight.
Notably absent from this new framework are certain restrictions outlined in Press Note 3 regarding foreign direct investment from neighboring countries; additional disclosure obligations tied to breaches of investment limits applicable to FPIs do not extend similarly towards FVCIs.
Current Trends in Venture Capital Investment
As per recent statistics from FY24 data released up until March 2024: there were 28 newly registered FVCIs bringing their total count up to 279; however, during this period also saw cancellations totaling 18 registrations. The overall investments made by FVCIs into Indian markets rose by an impressive 12% year-on-year reaching ₹53,922 crore—with a substantial portion directed towards sectors like information technology (IT).
This evolving landscape indicates a robust interest among foreign investors looking at India’s venture capital opportunities while navigating through enhanced regulations aimed at fostering transparency and accountability within financial markets.
