In a major development that may hugely affect the inflow of funds in India's equity market through Foreign Institutional Investors (FIIs), the Financial Action Task Force (FATF) has put Mauritius on the "grey list" alongside the likes of Pakistan. FATF is an inter-governmental body that sets anti-laundering standards for countries. With its latest decision, Mauritius has joined the likes of Pakistan which is already put under the grey list for funding terror activities through money laundering.
The ruling has sent shock waves among the FIIs domiciled or registered in Mauritius. The Indian equity market is also facing the heat as these FIIs have significant exposure to Indian markets. The move has put a question mark on the existing and new investment flowing into India from the country. Notably, Mauritius is the second-largest source of foreign portfolio investor (FPI) flows into India second only to the United States. The FIIs inflows from the country have remained high despite the tax treaties between the two countries back in 2017.
Mauritius based FPIs to remain eligible for registration: SEBI
Market regulator, Securities, and Exchange Board of India (SEBI) have tried to settle down the nerves and clarified that the Foreign Portfolio Investors (FPIs) will continue to remain eligible for FPI registration however with increased scrutiny as per FATF norms. In an official statement, SEBI said, "It is noted from the FATF website that when a jurisdiction is placed under increased monitoring, it construes that the country has committed to resolving swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. The FATF does not call for the application of enhanced due diligence to be applied to these jurisdictions but encourages its members to take into account this information in their risk analysis. The intermediaries should take note of the same."
It is to be noted that Mauritius has been a safe tax haven for foreign investors for over the last three decades from where these FPIs invest money in Indian equities. In the last few years, different agencies have raises apprehensions on this route for being a money-laundering route for FPIs due to limited regulations.