The world is not equal, complains Sebi chairman
The chairman of India’s securities regulator, UK Sinha, has moved to defend the institution against claims it has not done enough to facilitate international engagement and investment.
Speaking exclusively to AsianInvestor on a recent visit to Mumbai, Sinha underlined how the Securities and Exchange Board of India (Sebi) had looked to develop the domestic funds industry for both domestic and foreign investors.
Indeed he went further, accusing several jurisdictions of protectionism and expressing frustration at the status quo and pessimism about the will to change.
On the question of simplifying engagement in the domestic funds industry, Sinha noted Sebi had imposed know-your-customer (KYC) rules in 2012 to lower documentation requirements.
He observed there were now 20 million KYC registration authority (KRA) accounts. “Once you have registered with any of these KYC registered agencies, your KYC is treated as done,” he explained.
He added, too, this KYC process had been linked to the Unique Identification Authority of India, which has captured 850 million individual biometric identifications.
“All intermediaries have access to it and based on that they can on-board you,” he said. “Ease of doing business as far as investing in mutual funds is concerned is vastly superior in India to many other parts of the world.”
Sinha pointed out that India had shot up the global rankings for corporate governance and shareholder protection, rising from 49th in 2012 to 34th in 2013 to seventh last year. “That is above most developed countries,” he noted.
Asked whether Sebi could do more to develop India’s funds industry, he highlighted a bottleneck that the nation’s capital account was not fully convertible.
He said that while individuals could take out up to $250,000 per annum for investment, the Reserve Bank of India was not comfortable allowing foreign managers or their distributors to market funds in India. “This is not a Sebi requirement,” he clarified.
He stressed that sovereign institutions faced minimal documentary requirements for investing in India, while Sebi had simplified on-boarding requirements for regulated foreign portfolio investors on June 1 last year.
For individuals and unlisted companies, he noted Sebi was subject to Financial Action Taskforce requirements and as a member of Iosco was required to provide information about certain investments.
At the same time he countered that $45 billion had flowed into India via foreign portfolio accounts in 2014-15, which he said was an all-time record.
On the question of Indian fund houses needing to hold international assets offshore from a tax perspective, Sinha explained this issue had been clarified by the Finance Bill passed this May.
“Merely because a manager is sitting in India, it is not grounds for treating them as having ‘a permanent establishment’ and thereby forcing them to pay additional tax,” he said.
“If you are operating from Hong Kong, Singapore or elsewhere and are seeking advice from India, or you are even physically relocating your people in India, you don’t run that risk now.”
He added that updates to India’s Income Tax Act this May had also removed the previously imposed higher capital gains tax for international product onshore.
However, he stressed that certain jurisdictions were also seeking to protect their own interests. “You can’t raise money from overseas investors for a fund in India because certain jurisdictions – namely Luxembourg, Dublin and Singapore – don’t allow people to come here [India] and invest,” he said.
“Aren’t our regulations equivalent to their regulations? We are a signatory to Iosco, so why should that happen?”
Asked whether he had been in discussion with regulators in these jurisdictions to seek change, he said it had been a frustrating discussion.
“The same set of people will tell you India is being protective at the same time,” Sinha said. “This world is not equal. The dialogues that take place and the mindsets I encounter mean no change is going to take place.”