SEBI’s FPI Framework Revamp: A Structural Reset for Faster, Cleaner Foreign Investment

SEBI’s FPI Framework Revamp: A Structural Reset for Faster, Cleaner Foreign Investment

India’s foreign portfolio investment regime is finally getting the overhaul market participants have quietly been waiting for. In its new consultation paper, the Securities and Exchange Board of India (SEBI) has proposed a comprehensive revamp of the Foreign Portfolio Investor (FPI) framework, targeting three long-standing conflict points:

1. slow onboarding,

2. duplicative compliance, and

3. fragmented regulation.

At its core, the proposal is not cosmetic. It signals a shift from form-heavy regulation to process efficiency—without diluting regulatory oversight.

1. The Big Shift: From One-Size-Fits-All to Risk-Calibrated Registration

The headline reform is the introduction of an abridged application route for select categories of FPIs. These include:

•  Funds managed by an investment manager already registered as an FPI

•  Sub-funds under an existing master fund

•  Segregated share classes

•  Insurance schemes linked to an already registered FPI

What it means? Why this matters?

Until now, even closely linked investment vehicles had to go through the entire Common Application Form (CAF)process—repeating disclosures that were already verified multiple times. This created:

•  Onboarding delays

•  Unnecessary documentation backlogs

•  Higher custodial and legal costs

The proposed dual-track system (full CAF or abridged CAF) introduces regulatory proportionality—a principle global markets have long adopted.

Crucially, SEBI is not compromising on accountability:

• Custodians must take explicit consent before reusing existing disclosures

• They remain responsible for data accuracy and verification

• Registration certificates will now be generated directly through SEBI after validation

This shifts the compliance burden from the investor to the system itself.

2. A Single Master Circular: Ending Regulatory Fragmentation to avoid overlapping

Since May 2024, FPI regulations have been amended through multiple circulars—creating interpretation risk and compliance confusion.

SEBI’s proposal to issue a completely revised Master Circular for FPIs and Designated Depository Participants (DDPs) is more important than it appears on the surface.

What this achieves?

• Consolidates all recent changes into one authoritative document

• Reduces contradictions across sub-circulars

• Improves onboarding clarity for new foreign investors

•  Simplifies regulatory audits and inspections

This is a classic case of regulatory housekeeping that directly improves market confidence.

3. DDPs Move from Gatekeepers to Compliance Anchors

The proposal significantly sharpens the role of Designated Depository Participants (DDPs). They are no longer mere processors—they become frontline regulators-in-effect.

Their expanded responsibilities include:

•  Full due diligence

•  PAN verification via CAF

•  Review of incomplete applications

• Eligibility assessment based on:

• Country of residence

•  Regulatory status

•  Investor classification

In effect, SEBI is decentralising compliance without diluting control—a model seen in mature financial centers.

4. KYC & Beneficial Ownership: Clarity Over Ambiguity

One of the most important (and overdue) elements of the proposal is the standardisation of KYC and beneficial ownership norms across complex investor categories:

•  NRIs, OCIs & resident Indians

• FPIs investing only in government securities

• IFSC-based FPIs

• Banks, insurers, pension funds

• Funds with multiple investment managers

This directly addresses:

1.  Grey areas in control & ownership

2.  Structuring arbitrage

3. Regulatory uncertainty during audits

The framework now moves toward clear identification over layered opacity.

5. Lifecycle Regulation: From Entry to Exit

Unlike earlier frameworks that focused largely on entry, the new proposal also creates uniform processes for:

•  Renewal

• Surrender

• Transition

•  Reclassification

•  Ongoing compliance & reporting

This makes the FPI regime fully lifecycle-oriented, rather than just entry-focused.

6. The Strategic Signal: India Wants Faster Foreign Capital—Without Blind Spots

This proposal sends a clear message to global investors:

•  Faster registration

•  Lower duplication

•  Better custodian accountability

• Standardised KYC

•  Centralised regulatory documentation

But also ensure

• No dilution of beneficial ownership norms

• No relaxation of jurisdictional scrutiny

• Stronger verification at the DDP level

In short, SEBI is choosing speed with safeguards—not speed at the cost of supervision.

What Happens Next

SEBI has invited public comments on the proposal until December 26. Once finalised, this framework is likely to:

• Compress FPI onboarding timelines materially

• Reduce friction for global fund structures

• Improve compliance predictability

• Strengthen India’s position as a stable, process-efficient investment destination

Closing Thoughts

This is not just an administrative tweak. It is a structural realignment of how foreign capital enters Indian markets—balancing:

Ease of doing business + systemic risk control + data integrity.

If implemented well, this reform could quietly become one of the most consequential FPI upgrades in a decade.