Won’t prepare high-risk list: Sebi to Mauritius

Mumbai: India’s capital market regulator Sebi has told the Mauritius government that it will not come out with a list of “high-risk jurisdictions”. Senior Sebi officials assured this at a meeting with a delegation led by the CEO of the Financial Services Commission (FSC) of Mauritius, Harvesh Seegolam, on Wednesday.

“Sebi gave assurance that it is neither working on, nor contemplating to produce any list at its level, which will identify Mauritius as a high risk jurisdiction,” FSC said in a statement.

However, on Monday and Tuesday when Mauritian officials met custodians (of foreign funds) to understand the basis on which they had identified Mauritius as a high-risk jurisdiction, officials of custodian banks said they had prepared the list of high-risk countries at Sebi’s direction.

In the light of a recent Sebi circular, tagging a country as ‘high-risk’ would mean large investors and beneficial owners of funds entering India through these jurisdictions will face close scrutiny while non-resident Indians (NRIs) and persons of Indian origin (PIOs) will find it difficult to participate in offshore funds investing in India.

But, at Wednesday’s meeting, the FSC team was given the impression that India has no concerns with respect to Mauritius.

“The meeting was held within the framework of the existing MoU (memorandum of understanding) between the two regulatory bodies, and was cordial, constructive and fruitful. Both institutions reaffirmed the need for constant engagement and collaboration in regulatory matters between Mauritius and India,” said an FSC statement.


According to regulatory experts, Sebi is likely to take a relook at the new regulation on NRI investments.

“The meeting lasted for more than an hour. Sebi told the Mauritian team that there has been wide differences in classifying high-risk jurisdictions between custodians and those needed to be ironed out and that they had not asked the custodians to come out with this list,” said an official who was part of the meeting. However, custodian officials and advisors ET spoke to said that in successive meetings Sebi officials had specially instructed them to prepare a list which the custodian banks were never comfortable with.

Indeed, Sebi officials had even hinted that it was an advice from the government.

Meanwhile, differences have cropped up among custodians whether Mauritius and jurisdictions like China, UAE and Cayman Islands should be part of the list. After the US, Mauritius accounts for the highest level (about 16%) of total foreign portfolio inflows. It’s an inexpensive and a favourite route for many NRI and PIO investment managers.

Recently, global banks acting as custodians for foreign funds including HSBC, Deutsche Bank, Citi, Standard Chartered and JP Morgan shared a list of 25 countries that were tagged as “high-risk jurisdictions” with Sebi. Mauritius, China, the UAE, Cyprus were countries that figured in the list of “high-risk jurisdictions”.

The others are Bahamas, Bahrain, Bermuda, British Virgin Islands, Cayman, Channel Islands, Cook Islands, Guernsey, Indonesia, Isle of Man, Jersey, Kuwait, Liechtenstein, Malaysia, Oman, the Philippines, Russia, Saudi Arabia, Thailand, Trinidad and Tobago, and Turkey. Hong Kong, Switzerland, and Luxembourg have been dropped from the list.

A senior banker had told ET that Sebi will now finalise the names on the basis of the list from custodians.

The classification assumes importance following a Sebi regulation in April that NRIs and PIOs cannot be ‘beneficial owners’ (BO) of FPIs. BO would mean 25% ownership in a company or 15% in a trust or partnership — depending on how an FPI is structured abroad. The entry barrier is stiffer as the threshold (for establishing NRI control or dominance in the fund pool) would be at a lower (and therefore more stringent) level of 10% if the FPI is based in a high-risk jurisdiction.

The BO rule would also be triggered if the fund manager is an NRI though not an investor. Thus, NRIs and OCI (Overseas Citizen of India) card holders will not be able to own more than 10% of such FPIs coming from high-risk jurisdictions while details of any investor who owns more than 10% in the FPI will have to be provided to the custodian.