New SEBI Rules Simplify FVCI Registration and Investment, Set to Launch in 2025

Posted by Written by Archana Rao Reading Time: 3 minutes

The Securities and Exchange Board of India (SEBI) has introduced new regulations aimed at simplifying the registration and governance processes for Foreign Venture Capital Investors (FVCIs). These updated rules, effective from January 1, 2025, transfer the responsibility of managing FVCI registrations from SEBI to Designated Depository Participants (DDPs).

On September 6, 2024, India’s SEBI issued a notification announcing amendments to the Securities and Exchange Board of India (Foreign Venture Capital Investors) (Amendment) Regulations, 2024. 

Under the new system, FVCI applicants will need to partner with Designated Depository Participants (DDPs), which will also act as the custodian for their investments. Previously, SEBI handled FVCI applications directly, but now DDPs will conduct the due diligence and issue the required certification on SEBI’s behalf. According to the notification, the amendments will come into effect from January 1, 2025. 

Mandatory certification 

The SEBI (Foreign Venture Capital Investors) (Amendment) Regulations, 2024, specify that FVCI must first obtain a certificate issued by a DDP on behalf of SEBI to be allowed to buy, sell, or trade securities in India. 

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To apply for this certificate, an FVCI must submit an application to the DDP in the format specified by the central government or SEBI. Those who were already registered as FVCIs before the 2024 amendment must now engage with a DDP according to SEBI’s rules.

The application must also include the fee outlined in the regulations and any required documents as specified by SEBI. FVCIs or their global custodians must have agreements in place with both the DDP and custodian before making any investments.

Revised eligibility criteria

The eligibility criteria for FVCI applicants have also been revised to include Resident Indians (RIs), Non-Resident Indians (NRIs), and Overseas Citizens of India (OCIs). However, restrictions apply to individual contributions from NRIs, OCIs, or RIs that cannot exceed 25 percent of the FVCI’s total corpus, and their combined stake must remain below 50 percent. Additionally, these contributors are prohibited from exercising control over the FVCI.

To be eligible for registration as an FVCI, the DDP will approve the application only if the following conditions are met:

  1. The applicant must be a company or entity established outside India or in an International Financial Services Center (IFSC).
  2. The applicant must be from a country whose securities market regulator is a member of the International Organization of Securities Commission’s (IOSCO) Memorandum of Understanding, or a country that has a bilateral MoU with SEBI. Government or government-related investors are also eligible if they reside in a country approved by the Indian government. 
  3. If the applicant is a bank, it must be from a country whose central bank is a member of the Bank for International Settlements (BIS), unless regulated by its home banking authority, even if the central bank is not part of BIS.
  4. The applicant and its beneficial owners must not be listed on any sanctions list by the United Nations Security Council or be from a country identified by the Financial Action Task Force (FATF) for anti-money laundering or terrorism financing risks.
  5. The applicant must be deemed a “fit and proper” person, as defined in SEBI’s regulations.
  6. Any additional criteria specified by SEBI over time must also be met.

Another key change is the requirement that all FVCI investments be held in dematerialized (demat) form, ensuring greater transparency and efficiency in managing investments. These reforms are designed to streamline the regulatory framework and make it easier for FVCIs to invest in Indian companies.

As of March 2023, 269 FVCIs were registered with SEBI, having invested approximately INR 482.86 billion (US$5.75 billion) in Indian businesses.

(US$1 = INR 83.91)

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