Sebi FPI overhaul 2026: 5-day signup, 10-year KYC

Sebi and CBDT clash over a key compliance label

India’s markets regulator, the Securities and Exchange Board of India (Sebi), is negotiating with the Central Board of Direct Taxes (CBDT) to resolve a drafting problem that is slowing foreign portfolio investor (FPI) onboarding. The issue centres on what FPIs must call the individuals who sign and submit documents during registration and renewals. Sebi has proposed that the tax authority allow FPIs to name “authorised signatories” rather than being forced to appoint “authorised representatives” (AR) or “representative assessees” (RA) under an income tax rule.

The difference is not cosmetic. Industry participants say the AR or RA label creates an impression of potential tax responsibility. That, in turn, has made offshore fund employees and local professionals such as chartered accountants and lawyers reluctant to be named in FPI application records.

Why the “authorised representative” requirement is facing resistance

FPIs use Sebi’s common application form (CAF) to obtain a permanent account number and open bank and demat accounts. Under the newer income tax requirement, foreign investors are expected to provide AR or RA details. But people involved in the process say individuals do not want their names recorded as “representatives” because of perceived exposure if later tax disputes arise.

FPIs pay tax on dividend income and stock trading profits before remitting funds overseas. Even so, tax claims can arise later if the income tax department believes tax was not withheld adequately or that treaty benefits were used inappropriately. Market participants worry that, in such situations, an AR could be expected to engage with tax authorities.

Sebi’s workaround: shift to “authorised signatories”

Sebi’s proposal, communicated last week, seeks an easier alternative that keeps the onboarding process moving without CBDT rolling back the rule. The suggested solution is to let FPIs appoint “authorised signatories” when they register or renew their trading permissions.

A person aware of the discussions said an authorised signatory appointed through a power of attorney or a board resolution has no obligation and may not be asked to submit identity proof. Sebi did not comment on the matter, according to the report.

How this fits into Sebi’s push to streamline FPI onboarding

The signatory dispute is unfolding alongside Sebi’s broader effort to reduce friction for foreign investors. Sebi chief Tuhin Kanta Pandey has said the regulator plans to cut the FPI registration timeline sharply from 30 days to just 5 days.

Sebi has also said it is tracking applications and reaches out to FPIs or custodians if a registration gets delayed beyond a month. The regulator has cited a surge in FPI registrations and has run initiatives such as webinars and a digital information platform to improve the onboarding experience.

SWAGAT-FI: single-window access for trusted foreign investors

Sebi has recently introduced SWAGAT-FI (Single Window Automatic & Generalised Access for Trusted Foreign Investors) and has further streamlined the operating framework for onboarding FPIs and foreign venture capital investors (FVCIs) under this single-window system.

Eligible SWAGAT-FI applicants can seek FPI and FVCI registrations via a single application without submitting separate forms or documents, provided the same custodian and designated depository participant (DDP) is appointed for both. Existing FVCIs that meet eligibility conditions can also convert to SWAGAT-FI status through their DDP.

Longer validity and less frequent KYC reviews

Under the revised framework, Sebi extended the registration validity for SWAGAT-FI FPIs and FVCIs to 10 years from five years earlier. It also aligned the periodic KYC review cycle to once every 10 years. Sebi also simplified renewal requirements for FVCIs.

The SWAGAT-FI framework covers government and government-related investors, regulated retail mutual funds, insurance companies investing proprietary funds, and pension funds, subject to safeguards. Sebi said the new provisions will take effect from June 1, 2026.

Digital paperwork and common KYC discussions

Separately, Sebi has called for broader adoption of “India Digital Signature” by FPIs and said it will integrate India digital signature with the CAF used for FPI registrations. Pandey said this would reduce documentation requirements and ease compliance.

Sebi is also discussing a common KYC with the banking regulator. Pandey said he met the Reserve Bank of India (RBI) governor to smoothen the KYC process so that banks and FPIs could work with a common KYC requirement.

Settlement and funding cost changes: same-day proceeds and netting

Sebi has also worked on operational changes that affect how quickly FPIs access money from trades. In an October 16, 2024 press release, Sebi said it implemented process improvements so FPIs can access sale proceeds on the same day as settlement, aligning their experience with domestic institutional investors. Earlier, FPIs faced delays beyond the T+1 settlement date due to tax clearance requirements on net sale proceeds, needed for FEMA compliance.

In addition, Sebi has proposed allowing FPIs to net funds for same-day equity cash market trades instead of settling on a gross basis. The proposal aims to reduce funding costs, particularly during index rebalancing. Under the proposal, proceeds from outright sales can fund outright purchases on the same day, while intra-day buy-sell transactions in the same security would continue to settle on a gross basis. Sebi has invited public comments on this consultation paper until February 6.

KRA changes and other onboarding simplifications

In another consultation paper, Sebi proposed steps to ease client onboarding and strengthen risk management at KYC Registration Agencies (KRAs). Measures include centralising supplementary client information at the KRA level, reducing repetitive verification, simplifying documentation for Aadhaar-linked mobile numbers and PAN-Aadhaar name changes, and easing address requirements for OCI cardholders residing in India. Public comments were invited until January 31.

Key facts at a glance

Why this matters for markets and compliance

Sebi’s push reflects a clear policy intent: faster onboarding, lower operational friction, and fewer repetitive checks for low-risk or “trusted” foreign investors. But the Sebi-CBDT disagreement shows how tax definitions can affect market access even when market-side systems are being simplified.

If FPIs are required to name ARs or RAs and individuals remain unwilling to take that tag, onboarding and renewals can stall at a basic documentation step. Sebi’s suggested pivot to “authorised signatories” aims to preserve accountability for execution of documents without creating apprehension over later tax disputes.

Conclusion

Sebi is attempting to resolve a practical bottleneck with CBDT on how FPIs designate signers in tax-linked forms, while simultaneously rolling out SWAGAT-FI and other process changes to make foreign investor access faster and less paperwork-heavy. Key changes, including 10-year validity and a 10-year KYC cycle for SWAGAT-FI, are scheduled to take effect from June 1, 2026. Separately, consultation processes remain open for proposals such as same-day trade netting and KRA onboarding reforms, with specified comment deadlines.