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SEBI eases KYC rules for foreign portfolio investors

The market regulator, Securities and Exchange Board of India revised the know-your-client (KYC) pre-conditioned criteria for foreign portfolio investors (FPIs).

Harun R. Khan 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.

What relaxations did Sebi make?

  • The clubbing of investment limits for FPIs will be done on the grounds of a different set of norms and not PMLA rules
  • All the registered FPIs under category II and III must submit a list of their beneficial owner and relevant KYC documentation within six months from the release of the mandate.
  • If in case the FPI is unable to follow the rules by the given deadline, he will not be permitted to make any purchase. Although he can sell already purchased securities.

Apart from this, Sebi in the circular stated 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 are less than 50% of the assets under management of the FPI. The NRI, OCI or RI should not be in control of the FPI.

As reported by Live Mint, UR Bhat, director at Dalton Capital Advisors (India) Pvt. Ltd said, “It is a good step in the right direction but we have to introspect why we should be having stricter norms for NRIs in the first place. If getting clean money is the concern, as it should be, there are better ways to deal with it. We should not be seen to be actively discouraging honest NRIs from investing in India.”

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