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The 100 per cent foreign direct investment (FDI) window under the ‘automatic’ approval route for insurance intermediaries has now got the force of law with Finance Ministry bringing relevant changes to the FEMA rules in this regard.
The Department of Economic Affairs in the Finance Ministry has amended the FEMA rules (for non debt instruments) to notify the changes introduced in the FDI policy by the Department of Promotion of Investments and Internal Trade (DPIIT) in end February this year.
Atul Pandey, Partner, Khaitan & Co, a law firm, said that the amendment has now notified the changes which were earlier introduced by DPIIT in the insurance sector in its Press Note No 1 of 2020 to permit 100 per cent foreign direct investment in insurance intermediaries. “Since the Press note itself notified that the same would come into effect from the date of corresponding FEMA notification, accordingly, this change will now have the force of law”, he said.
Any decision taken by the government to make it a law from foreign investment perspective, a notification has to be issued under FEMA ( foreign Exchange Management Act) and now that notification has been issued by the Finance Ministry, Pandey added.
All the conditions introduced by DPIIT while making the FDI policy change for insurance intermediaries in February have now been stipulated under the FEMA rules as well. It may be recalled that Finance Minister Nirmala Sitharaman had in her budget speech last year announced 100 per cent FDI will be allowed in insurance intermediaries under automatic route.
While placing the foreign equity investment cap of 100 per cent for insurance intermediaries, the DPIIT had made it clear that the condition of ‘ Indian Owned and Controlled’ applicable for insurance companies would not be applicable to intermediaries and insurance intermediaries.
The composition of the Board of Directors and key management persons of the insurance intermediaries would be specified by the concerned regulators from time to time, DPIIT had then said,
Also, among other stipulations, prior permission of insurance regulator IRDAI is also needed for repatriation of dividend.
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