Asset Managers Roundtable of India (AMRI), an organisation which represents the foreign portfolio investors (FPIs) community in India, has expressed concerns about a Securities Exchange Board of India ( Sebi) circular issued in April 2018 on Know-Your-Client (KYC) requirements for FPIs.
AMRI, in a press conference on Monday, said though the circular was released to enhance KYC norms, it has instead resulted in restrictions on investments and some cases, it has even placed a blanket ban on investments through certain FPIs. AMRI said there was no prior consultation with the stakeholders before the circular was issued.
AMRI said the immediate impact of the circular, if not amended, is that $75-billion investment managed by Overseas Citizens of India (OCIs), Persons of Indian Origin (PIOs), Non-Resident Indians (NRIs) will be disqualified from investing into India, and the funds will have to be withdrawn and liquidated within a short timeframe, thereby adversely affecting the Indian markets.
“If not corrected immediately, about $75 billion worth of investments will need to be unwound in a short period, causing a stock market crash and a sharp fall in the rupee in an election year. We hope that the right authority in the country takes cognizance of this issue and we ask for his immediate intervention,” said Nandita Agarwal Parker, president of AMRI.
AMRI urged Sebi and the relevant ministry for an opportunity to allow the foreign portfolio investors to put forth their views on the matter.
“Apart from the seemingly biased, but perhaps unintended approach that the circular seems to take by placing restrictions on NRIs and resident Indian groups from managing FPI money, there are several other aspects of the circular which have created ambiguity like calculation of clubbing limits for FPIs, definition of senior managing official, what is high-risk jurisdictions,” said Tejas Desai, partner, Ernst & Young.
AMRI said the circular distrusts the NRI and resident institutional community and presumes without any basis that all of them do not pass KYC tests. AMRI noted the circular is somewhat vague, opaque and is very confusing for the market to understand and for stakeholders to comply.
The markets regulator made changes to the KYC framework for FPIs through a circular on April 10, 2018. One of the main changes proposed in the circular was the identification of the beneficial owner.
According to the circular, a beneficial owner who is a natural person would be identified under the Prevention of Money Laundering (Maintenance of Records) Rules, 2005.