Foreign institutional investors (FIIs) and sub-accounts registered with the Securities and Exchange Board of India are expected to comply with SEBI’s FII Regulations, 1995. Under these regulations, FIIs are expected to inform SEBI of any “material change” in information previously submitted to SEBI, which has a bearing on their registration with the regulator.
The term “material change” is not defined under the FII Regulations. However, from SEBI’s perspective, it means any change in the information already provided in applications for FIIs and sub-accounts. Examples of changes that should be reported include changes to the name and address of an FII or sub-account; changes to the name of an FII’s compliance officer and restructuring of an FII.
FIIs and sub-accounts are also expected to let SEBI know about any failure initially to report reorganization; any instance of violation or non-adherence to securities laws, a code of ethics or a code of business rules; economic or criminal liability; suspension of operations; and if their registration has been revoked, either temporarily or permanently.
At present, the regulations do not specify any consequences for noncompliance with the rules, however SEBI may use its discretionary powers to take action against FIIs or sub-accounts as it deems necessary. These penalties could be monetary or lead to the cancellation of registrations with SEBI.
After analysing the impact and materiality of the change in information, SEBI could condone or take action against the FII or sub-account. In the latter case, SEBI provides the option of a consent application process through which the dispute may be settled by paying a settlement amount of approximately US$5,000 to US$15,000. The settlement amount also depends on the violation and the time that has lapsed between the violation and the disclosure.
However, in situations where the violation is intentional, or there is a history of non-compliance, SEBI has generally cancelled the FII or sub-account’s registration.
