The markets regulator on Tuesday clarified that foreign investors from Mauritius will continue to be eligible for registration in India but will face tougher disclosure requirements.

The Securities and Exchange Board of India’s statement comes after the island nation, a tax haven and the second-largest source of foreign portfolio investments into India after the US in 2019, was placed on an international terror-financing watch list. Funds coming from Mauritius will now be subject to stricter know-your-client disclosures, compliance and regulatory scrutiny, a Sebi spokesperson said.

Financial Action Task Force , a Paris-based monitoring group to tackle terrorism financing and money laundering, last week put countries, including Mauritius, Pakistan and Cayman Island on its grey list, which indicates the jurisdictions have weak rules to prevent money laundering and terror financing.

Richie Sancheti, head of investment funds at law firm Nishith Desai Associates, said that Sebi’s move is pragmatic. “The guidance from FATF to its members (which includes India) in such cases is to take this into account in their risk analysis. Accordingly, the view taken by Sebi to not restrict participation by Mauritius-based FPIs and new applicants is pragmatic.

“Non-FATF countries were seldom a favourable destination for US or UK investors. But for funds looking for treaty benefits in certain type of investment instruments, Mauritius has always been a favoured route. The Sebi clarification is a big boost for Mauritius since the cloud of negativity is now gone. However, we may still see enhanced monitoring on FPI as well as FDI investments,” said Neha Malviya, director of Wilson Financial Services.Sebi’s clarification comes as a positive for investors but it may not resolve all concerns around Mauritius.