KYC for FPIs: SEBI to review April circular

By: | Published: September 6, 2018 5:36 AM

Amid apprehensions that its April 10 circular on beneficial ownership of offshore funds could cause potential capital outflows of $75 billion, Sebi said it would review the matter.

sebi, fpi, security and exchange board of indiaThe regulator, in April, had asked Category II and III FPIs to provide list of their beneficial owner in a prescribed format within six months.

Amid apprehensions that its April 10 circular on beneficial ownership of offshore funds could cause potential capital outflows of $75 billion, the Securities and Exchange Board of India (Sebi) said on Wednesday it would review the matter and take a “holistic view”, seeking to assuage panic among investors.

The markets regulator said a working group, set up under former Reserve Bank of India deputy governor HR Khan to address various issues relating to the circular, has already heard various stakeholders and is in the process of giving its recommendations. “Ministry of finance, government of India has also been consulted on various issues. Based on these inputs, Sebi would review the matter and shortly take a holistic view,” it said in a statement.

On Tuesday, economic affairs secretary Subhash Chandra Garg, too, sought to downplay fears of huge capital outflows, saying the directive has no “immediate implications”. He added Sebi had already extended the circular’s deadline to December 31 for providing details on the beneficial owners — or the natural persons who ultimately own or control foreign portfolio investors (FPIs).

Earlier this week, Asset Managers Roundtable Of India (AMRI), an investor lobby group, warned that Sebi’s new KYC norms stipulated in the circular could lead to outflows of $75 billion and hit the domestic currency and stocks. However, Sebi has termed “preposterous and highly irresponsible” the claim of $75-billion in potential outflows.

Nevertheless, some analysts have say it’s not about disclosure of end beneficiaries but the restrictions the circular imposes on FPIs being managed by non-resident Indians (NRIs) and people of Indian origin (PIO) that is troubling the investors. The directive will impact both India-dedicated funds set up by NRIs and the funds that are being managed by them, they have said.

Garg had said NRIs were already allowed to invest in Indian securities, with a cap of 5% (up to which they can invest in single securities). “If some NRI is a beneficial owner then that has been defined. If you have economic interest (in some securities) and you manage (them), that is not permissible,” he had said, hinting that the curbs are aimed at avoiding conflict of interests.

Providing some relief to FPIs, Sebi had on August 21 extended the deadline by two months till December for providing a list of beneficial owners, and assured them that issues raised will be looked into by the HR Khan-led expert group.

The regulator, in April, had asked Category II and III FPIs to provide list of their beneficial owner in a prescribed format within six months. It had formed the expert group in March to advise it on redrafting the FPI Regulations for simplification and to advise on any other issue relevant to such investors.

In its April circular, Sebi had also asked FPIs to disclose name and address of the beneficial owner; whether they are acting alone or together through one or more natural persons as group, tax residency jurisdiction, percentage of beneficial owner group’s shareholding capital or profit ownership in the FPI.

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