Relief for FPIS as Sebi eases know-your-client guidelines

MUMBAI: The Securities and Exchange Board of India (Sebi) on Friday relaxed know-your-client (KYC) requirements norms for foreign portfolio investors (FPIS).

After considering the interim recommendations of the Sebi working group under the chairmanship of Harun R Khan, a former deputy governor of the Reserve Bank of India, the capital markets regulator said beneficial ownership criteria in Prevention of Money Laundering (Maintenance of Records) Rules, 2005, or PMLA Rules, should be made applicable for purpose of KYC and not for determining eligibility of FPIS.

“The clubbing of investment limit for FPIS should not be done on the basis of beneficial owner (BO) according to PMLA Rules. Accordingly, there will be a separate set of norms for determining conditions where non-resident Indians (NRIS) and overseas citizens of India (OCIS) and resident Indians (RIS) are constituents,” Sebi has said rules under Prevention of Money Laundering Act should be made applicable for purpose of KYC and not for determining eligibility of FPIS.

The clubbing of investment limit for FPIS should not be done on the basis of beneficial owner as per PMLA rules

Existing FPIS that are not compliant with these norms will be given two years to meet the eligibility criteria.

Sebi said. The KYC review, including changes in BOS and their holdings, should be done based on risk categorization of FPIS, according to Sebi norms. The norms state that in case of category II and category III FPIS from high-risk jurisdictions, the KYC review should be done on a yearly basis.

“Category II and III FPIS registered prior to this circular (existing FPIS) should provide the list of BOS and applicable KYC docu- mentation within six months from the date of this circular,” Sebi said.

If an existing FPI fails to comply with the applicable KYC requirements by the given deadline, the custodian concerned shall not allow such FPIS to make fresh purchases till the time KYC documentary requirements are complied with. However, such FPI will be allowed to continue to sell the securities already purchased by it. Such FPI will be allowed to disinvest its holdings within a period of 180 days from the expiry of the timeline. In case the FPI remains non-compliant with the requirements even after 180 days from the said deadline, its FPI registration will no longer be valid and it would need to disinvest its holdings immediately.

The regulator said that NRIS, OCIS, and RIS will be allowed to be constituents of FPIS as long as a single NRI, OCI or RI holds less than 25% and the aggregate holdings by such entities is less than 50% of the assets under management of the FPI. The NRI, OCI or RI should not be in control of the FPI.