Description

SEBI settlement order against BNP Paribas for violations of FPI Regulations related to granting Category II licenses to ineligible FPIs and failure to identify regulatory status during conversion.

Summary

SEBI issued Settlement Order No. SO/SM/SM/2024-25/8434 against BNP Paribas (SEBI Registration No. IN/CUS/023, PAN: AAACB4868Q) for violations of FPI Regulations. The adjudication proceedings under Section 15-I of SEBI Act, 1992 were initiated for alleged violations including granting Category II licenses to six ineligible FPIs and failure to identify that these FPIs were not regulated by UK-FCA during conversion. A Show Cause Notice was issued on February 25, 2025.

Key Points

  • Settlement Application No. 8434/2025 filed by BNP Paribas
  • Adjudicating Officer appointed: Sh Amar Navlani, General Manager, SEBI (initial), later transferred to current officer on September 11, 2025
  • Show Cause Notice issued on February 25, 2025 (SEBI/EAD5/P/OW/2025/6032/1)
  • Violations relate to six FPIs granted improper category licenses
  • BNP Paribas acted as Designated Depository Participant (DDP)

Regulatory Changes

No new regulatory changes introduced. This order enforces existing FPI Regulations, 2014 and 2019.

Compliance Requirements

  • DDPs must ensure FPIs meet eligibility criteria for Category II licenses under FPI Regulations 2014
  • DDPs must verify regulatory status of FPIs by appropriate foreign regulatory authorities (e.g., UK-FCA) during conversion and re-categorization
  • Compliance with Regulation 7(1) of FPI Regulations 2014 read with Regulation 5(b)
  • Compliance with Regulation 45(2)(b) and Regulation 7(1) of FPI Regulations 2019 read with Regulation 5(a)
  • Adherence to Operational Guidelines for FPIs, DDPs dated November 05, 2019, para 2(v) of Part A

Important Dates

  • February 03, 2025: Original Adjudicating Officer appointed
  • February 25, 2025: Show Cause Notice issued
  • September 11, 2025: Matter transferred to new Adjudicating Officer
  • September 19, 2025: Proceedings communicated to current Adjudicating Officer

Impact Assessment

This settlement order impacts BNP Paribas and sets precedent for other DDPs and custodians handling FPI registrations. The violations relate to:

  1. Categorization Failures: Six FPIs incorrectly granted Category II licenses when ineligible under FPI Regulations 2014
  2. Regulatory Verification: Failure to identify that six FPIs were not regulated by UK-FCA at time of conversion to Category I under FPI Regulations 2019
  3. DDP Accountability: Emphasizes due diligence responsibilities of DDPs in verifying eligibility and regulatory status

The proceedings under Section 15HB of SEBI Act, 1992 and Regulation 43 of FPI Regulations 2019 demonstrate SEBI’s focus on proper FPI categorization and compliance by intermediaries. Other DDPs and custodians should review their FPI onboarding and conversion processes to ensure compliance with eligibility and regulatory verification requirements.

Impact Justification

Settlement order against major custodian/DDP for FPI regulation violations. Medium impact as it relates to procedural compliance rather than market operations. Important for FPI custodians and DDPs.