India's markets regulator has said that foreign portfolio investors from Mauritius will continue to be eligible for registration with increased monitoring as per international norms.
That comes after the tax haven was put on the ‘grey list' of Financial Action Task Force—an inter-governmental group that sets standards to curb money-laundering. The task force in its February review brought new jurisdictions—Albania, Barbados, Jamaica, Mauritius, Myanmar, Nicaragua and Uganda—under its “increased monitoring" category.
When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within the agreed time frame. The new guidelines will see enhanced know-your-customer verification of Mauritius-based entities seeking FPI registrations.
According to Richie Sancheti, head of the funds practice at law firm Nishith Desai Associates, the stand taken by the Securities and Exchange Board of India to allow registration to Mauritius-based FPIs, albeit under enhanced monitoring, is pragmatic.
Mauritius has committed to resolve identified strategic deficiencies within the agreed time frame and is subject to increased monitoring, he said, adding that the guidance from FATF to its members in such cases is to take into account the information presented in their risk analysis.
Sancheti said there would be no new impact due to this as Mauritius, a Catergory-II FPI jurisdiction, was ineligible to issue or subscribe to offshore derivatives instruments.
SEBI had in September 2019 notified new rules categorising FPIs in two buckets instead of three, besides easing norms for investment in offshore derivative instruments.
The statement from FATF said that Mauritius will work on the following as part of its action plan:
- Demonstrating that the supervisors of its global business sector and designated non-financial businesses and professions implement risk-based supervision.
- Ensuring the access to accurate basic and beneficial ownership information by competent authorities in a timely manner.
- Demonstrating that law enforcement agencies have capacity to conduct money-laundering investigations, including parallel financial investigations and complex cases.
- Implementing a risk-based approach for supervision of its non-profit organisation sector to prevent abuse for terrorist-financing purposes.
- Demonstrating the adequate implementation of targeted financial sanctions through outreach and supervision.
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