FIIs may face tougher entry norms

The finance ministry of Govt of India, wants to restrict investments by foreign institutional investors (FIIs) from countries whose market regulatory structure is not compliant with principles laid down by the International Organisation of Security Commissions (IOSCO).

Drawing from the Ashok Lahiri committee recommendations, the ministry, which had earlier asked Sebi to prepare a negative list of tax havens, has asked the regulator to prepare a list of non-IOSCO jurisdictions. This move by the ministry may lead to a blueprint for FII investments in the country. Sources said it was important to ensure that an entity investing in India was regulated by a credible regulator back home, which followed internationally-accepted principles of due diligence. A country becomes a tax haven only because of a favourable double taxation avoidance agreement with India. A tax haven can lose its status with changes in the tax treaty.

While a country which is not a tax haven may not necessarily have a robust security markets regulatory structure in conformity with global best practices, a tax haven, in some cases, could follow global best practices in its security market regulations.

The Spain-headquartered IOSCO is the international standard-setter for securities markets with its norms applicable in more than 90% of world’s securities markets. All IOSCO members have to sign a memorandum of understanding, follow the principles endorsed by the body and facilitate exchange of information among the international community of securities regulators.

The organisation follows a comprehensive methodology which enables an objective assessment of the level of implementation of the IOSCO principles in the jurisdictions of its members and the development of practical action plans to correct identified deficiencies.

The body aims at facilitating cross-border co-operation, reducing global systemic risk, protecting investors and ensuring fair and efficient securities markets. It has 109 ordinary members, 11 associate members and 63 affiliate members.

Incidentally, market regulators in some popular tax havens including Mauritius, Cyprus and British Virgin Islands have MoUs with IOSCO. The majority of the foreign investment into the securities market in India comes from Mauritius because of the existence of a favourable tax treaty between the two countries. While Sebi is an associate member, Forwards Markets Commission of Mauritius is an ordinary member of IOSCO which was set up in 1983.

TOI