SEBI Consultation Paper on Review of the Master Circular for Foreign Portfolio Investors and Designated Depository Participants

The Securities and Exchange Board of India (SEBI), through its consultation paper issued in December 2025, has proposed a revised and simplified Master Circular governing Foreign Portfolio Investors (FPIs) and Designated Depository Participants (DDPs). The proposed Master Circular seeks to consolidate various circulars issued subsequent to May 30, 2024 and update the Master Circular for Foreign Portfolio Investors, Designated Depository Participants and Eligible Foreign Investors was issued on May 30, 2024 (“May 30 Master Circular”), streamline regulatory language, remove redundant and transitory provisions, and enhance ease of doing business while preserving the underlying regulatory framework under the SEBI (Foreign Portfolio Investors) Regulations, 2019 (“FPI Regulations”).

This article examines the key legal and regulatory aspects of the consultation paper, with a focus on structural changes, compliance implications, and interpretational issues relevant to FPIs, intermediaries, and market participants.

Regulatory Context and Objective

SEBI has historically adopted a circular-based approach to operationalising the FPI Regulations, addressing procedural requirements, eligibility conditions, investment norms, and disclosure obligations through periodic amendments. While this approach allows regulatory responsiveness, it has also resulted in a fragmented compliance landscape. The proposed Master Circular is intended to function as a consolidated legal instrument, rescinding the May 30 Master Circular, to the extent applicable to FPIs and DDPs, while preserving rights, obligations, and liabilities accrued under the rescinded framework.

The proposed rescission and savings clauses clarify that regulatory enforcement actions, ongoing proceedings, and liabilities accrued under the May 30 Master Circular will continue to remain valid notwithstanding the consolidation exercise.

Registration and Onboarding of FPIs

The consultation paper reiterates the Common Application Form as the centralised mechanism for FPI registration, opening of bank and demat accounts, and allotment of Permanent Account Number. The continued reliance on a unified application framework reflects SEBI’s emphasis on procedural efficiency and regulatory consistency.

The proposed Master Circular retains the requirement for non-individual FPIs to obtain and maintain an active Legal Entity Identifier, aligning Indian securities regulation with international standards on entity identification and systemic risk monitoring. Accounts of FPIs with lapsed Legal Entity Identifiers are proposed to be restricted from further purchases, underscoring the compliance-sensitive nature of this requirement.

Simplified Registration and Reliance on Existing Due Diligence

A key facilitative measure retained in the draft framework is the simplified registration process for certain categories of applicants, including sub-funds, schemes of insurance companies, and funds managed by already registered investment managers. The option to submit an abridged Common Application Form, with auto-population of existing verified data, reflects a risk-based regulatory approach.

While the simplified registration framework permits reliance on previously submitted information, the proposed Master Circular continues to require disclosure of material changes in ownership, control, or regulatory status, where applicable.

Role, Duties, and Liability of Designated Depository Participants

The proposed Master Circular reinforces the central role of DDPs as quasi-gatekeepers in the FPI regime. DDPs are required to undertake country eligibility checks, regulatory status verification, fit and proper assessments, and eligibility analysis relating to Non-Resident Indians, Overseas Citizens of India, and Resident Indian constituents.

The codification of these obligations sets out the scope of due diligence responsibilities applicable to DDPs at the time of onboarding and during the continuance of registration. The shared database of rejected applications, along with reasons for rejection, is intended to prevent regulatory arbitrage and enhance transparency among intermediaries.

Participation by Non-resident Indian (NRI), Overseas Citizen of India (OCI) and Resident Indians (RI)

The consultation paper substantially retains the existing regulatory thresholds governing participation by NRIs, OCIs, and RIs, including limits on individual and aggregate contributions and restrictions on control. These provisions are intended to address regulatory treatment of NRI, OCI, and RI participation within the FPI framework.

Notably, the proposed Master Circular continues to provide conditional relaxations for FPIs based in International Financial Services Centres regulated by the International Financial Services Centres Authority. These relaxations are accompanied by prescriptive requirements relating to investor diversification, investment concentration, and independence of investment management, subject to compliance with specified conditions relating to diversification, investment concentration, and independence of investment management.

Post-Registration Compliance and Regulatory Consequences

The proposed framework comprehensively addresses post-registration events, including renewal, surrender, change of custodian or DDP, reclassification of FPIs, and change in jurisdictional status. Clearly defined timelines and consequences for non-compliance are specified, including suspension of fresh purchases and mandatory liquidation of holdings within prescribed periods.

Of particular legal significance is the structured mechanism for dealing with securities held after expiry or lapse of registration. The introduction of financial disincentives and deemed write-off provisions sets out a structured framework for dealing with securities held by FPIs following expiry or lapse of registration.

Know Your Client (KYC) and Beneficial Ownership Norms

The consultation paper consolidates KYC requirements, beneficial ownership identification standards, periodic review obligations, and data security protocols. The application of look-through principles, materiality thresholds, and enhanced scrutiny for high-risk jurisdictions is consistent with applicable anti-money laundering and counter-terrorism financing requirements.

The continued allowance for reliance on KYC conducted by regulated group entities in Financial Action Task Force (FATF) member jurisdictions offers operational relief, though intermediaries remain accountable for ensuring availability of underlying documentation upon regulatory demand.

Investment Conditions and Market Conduct

The proposed Master Circular combines all investment-related rules applicable to FPIs in one place. These rules cover investments in equity, debt, derivatives, commodity derivatives, and collective investment vehicles. It also sets out the requirements for monitoring investment limits, reclassifying investments where required, and participating in both primary and secondary markets.

These requirements apply to FPIs and issuers for tracking investments at the investor group level and ensuring compliance with applicable jurisdiction-related conditions.

Disclosure Framework and Offshore Derivative Instruments

Transparency continues to be an important part of the regulatory framework. The proposed Master Circular retains and combines the additional disclosure requirements applicable to certain FPIs, including detailed ownership disclosures and the consequences of non-compliance. It also brings together the rules relating to the issuance of offshore derivative instruments.These provisions specify the disclosure and reporting obligations that apply to FPIs and intermediaries.