Sebi, finmin to ease KYC norms for investors from FATF nations

Written by Himani Kaushik | New Delhi | Updated: May 31 2013, 07:05am hrs
Capital markets regulator Sebi and the finance ministry are planning to further ease the Know Your Customer (KYC) norms for foreign investors who already comply with the laws of their parent country having membership in the Financial Action Task Force (FATF). FATF is an inter-governmental body that sets global benchmarks on legislation to prevent terror funding and money-laundering.

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A senior government official told FE that the finance ministry is designing a risk- based assessment system under which different financial products such as sovereign wealth funds, FIIs, mutual funds, pension funds and others will be categorised in low-, medium- and high-risk categories.

Under the new norms, Sebi will not require fresh filing of KYC if the applicant has already filed them with any other jurisdiction or parent country which is an FATF member. Currently, there are 34 member countries following FATF guidelines. As of now, a foreign investor has to comply with Indian uniform KYC norms before investing in the country.

KYC is a bank regulation that financial institutions and other regulated companies must perform to identify their clients and ascertain information pertinent to doing financial business with them.

In India, Prevention of Money Laundering Act (PMLA) was passed in 2002 and it has been aligned with FATF recommendations in 2009. Further, India became a member of FATF in 2010. The new norms, along with the Prevention of Money Laundering Act (PMLA) rules, will be issued by June end, sources said.

The ministry plans to put government-supported sovereign wealth funds (SWFs), government-based funds or trusts under low risk. Banks, insurance and pension funds and asset management companies will fall in the medium-risk category. The market regulator has decided to keep corporate bodies, private trusts, foreign institutional investors, non-resident Indians, qualified foreign investors and mutual funds under the high-risk category.

The new framework will reduce documentation and repeated filings of KYC, but strengthen the surveillance system by way of greater checks against money laundering. A financial investor will not require to apply for fresh KYC unless in case of material disclosure of information, the official added.

To ease the compliance burden, Sebi had said in 2011 that it would set up a uniform KYC regulation authority. So far, different mutual funds share data on KYC but a uniform KYC is not applicable for all financial products.