SEBI streamlines regulation of foreign venture capital investors

Partner: Sanjam Arora, Counsel: Shashwat Sharma, Senior Associate: Prashant Khurana

1. Introduction

The Securities and Exchange Board of India (SEBI) has amended the SEBI (Foreign Venture Capital Investors) Regulations, 2000 (FVCI Regulations) with effect from 1 January 2025. The amendments authorise designated depository participants (DDP) to take-over key activities in relation to the licensing and oversight of FVCIs, as is already the case for Foreign Portfolio Investors (FPI).

2. Key changes to the FVCI Regulations

2.1 Licensing of FVCIs by DDPs

Going forward, FVCI registrations will be processed by DDPs instead of SEBI. Many global financial services firms offering custodian services, either directly or through their affiliate networks, are licensed to act as DDPs in India. Investors may leverage their existing relationships with these institutions to ease onboarding and KYC checks.

2.2 Rationalisation of eligibility criteria

The eligibility criteria for FVCI registration have been rationalised, with the new criteria being limited to basic KYC checks, particularly the following:

1. a. Jurisdiction
   • Sanctions/anti-money laundering: The applicant’s country of domicile should not be on the sanctions or restricted lists identified by the Financial Action Task Force (FATF) or the United Nations Security Council. This requirement also applies to any individual beneficial owner holding more than 10% interest in the applicant.
   • Regulatory reciprocity: The securities regulator of the applicant’s country of domicile must be a signatory to the International Organization of Securities Commission’s (IOSCO) Multilateral Memorandum of Understanding (MoU) or must have a bilateral arrangement with SEBI providing for mutual information sharing in regulatory investigations. This is the case for most jurisdictions typically utilised by foreign investors looking to enter India, including Singapore, Mauritius and Dubai.
2. b. Fit and proper check

The applicant must satisfy SEBI’s ‘fit and proper’ criteria, including financial soundness and professional competence.

2.3 Disclosure of beneficial ownership

Beneficial ownership of 10% or more of any natural person in the applicant will need to be disclosed to the DDP. Where no such individual beneficial owner exists, the FVCI must disclose details of a ‘senior managing official’.

2.4 Renewal of registration

The FVCI license will need to be renewed after every five years. At the stage of renewal, the FVCI needs to disclose to the DDP any material changes to the information submitted in the original application.

FVCIs that were incorporated until December 2019 have been allowed time until 31 March 2025 to process their renewal through DDPs.

2.5 Intimation of material events

FVCIs will need to report all ‘material changes which have a bearing on’ the FVCI registration within 30 days. Certain changes, identified as ‘Type 1 material changes’, need to be reported within seven days and will also require the FVCI to obtain a fresh registration. Type 1 material changes include change in domicile, change in name, change in legal form, a corporate restructuring which results in the FVCI entity ceasing to exist, penalties or investigations by foreign regulators, etc.  

2.6 Existing FVCIs to appoint custodians

Existing FVCIs are also required to appoint a DDP by 31 March 2025. The DDP will verify that the FVCI meets the new eligibility criteria within six months of its appointment. FVCIs that fail to appoint a DDP will be unable to make further investments in India.

3. Key Timelines

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