Indian KYC rules to apply to all P-Notes

NOOSE TIGHTENS Move to help check money laundering

MUMBAI: The Securities and Exchange Board of India (Sebi) on Thursday made it mandatory for all users of Participatory Notes (P-Notes) to follow Indian know-your-client (KYC) norms, in a move to curb round-tripping through this route. The proposed changes come on the heels of an amended tax treaty with Mauritius under which India will get to tax capital gains on investments made through the island nation.

The issuers would have to conduct periodic review and report the complete transfer trail of P-Notes, also known as offshore derivative instruments (ODIs), to Sebi on a monthly basis, in addition to the current requirement of reporting details of their holders.

Till now, the issuers of P-Notes followed the KYC norms of either the jurisdiction of the end-beneficial owner or the jurisdiction of the ODI issuer. “To bring about an uniformity in the KYC norms, it has been decided that Indian KYC norms will now be applicable to all ODI issuers. The KYC norms applicable to ODI issuers will be the same as that for all other domestic investors,” Sebi said.

The regulator also said that issuers of ODIs shall now be required to identify and verify the beneficial owners in subscriber entities who hold in excess of the threshold, as defined under the Prevention of Money-laundering Rules of 2005. So, investors who own 25% in case of a company, and 15% in case of partnership firms/trusts/ unincorporated bodies, will have to disclose identities. The issuers shall also be required to identify and verify the persons who control the operations of these entities.

The decisions were taken in response to concerns raised by the Supreme Court-appointed Special Investigation Team on black money.