Sebi issues rules on identification of beneficial ownership

Jan 25 2013, 01:55 IST
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SummarySebi asked market entities, including stock brokers and mutual funds, to take "reasonable measures" to identify the ultimate beneficiaries of their clients, as part of efforts to ensure more transparency in securities market.

Sebi on Thursday asked market entities, including stock brokers and mutual funds, to take "reasonable measures" to identify the ultimate beneficiaries of their clients, as part of efforts to ensure more transparency in securities market.

The capital market regulator has directed all the market entities to identify the "natural person", who, whether acting alone or together ultimately has a controlling ownership interest.

"Where the client is a person other than an individual or trust, company, partnership or unincorporated association/body of individuals, the intermediary shall identify the beneficial owners of the client and take reasonable measures to verify the identity of such persons," Sebi said in a circular.

Controlling ownership refers to entities having more than 25 per cent of shares or capital or profits in a company.

In the case of a partnership, association or body of individuals, the threshold level to be described as controlling ownership is "more than 15 per cent of the capital".

Sebi (Securities and Exchange Board of India) said guidelines would come into force with immediate effect.

The market regulator said if a market intermediary is not able to identify the "natural person" who is entitled to have the controlling ownership, then a verification of a senior managing official has to be carried out.

In instances where there are doubts about the person having controlling ownership interest in an entity, Sebi said that such control could also be exercised through "voting rights, agreement, arrangements or in any other manner".

Sebi said in case the client is a trust, market entities are required to identify the beneficiaries through the identity of the settler of the trust, the trustee, the protector.

The regulator said the beneficiaries would be those having 15 per cent or more interest in the trust and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership.

Sebi has exempted from verifying identities if the client or the owner of the controlling interest is a company listed on a stock exchange, or is a majority-owned subsidiary of such a company.

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