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Know Your Client (KYC) requirements for Foreign Portfolio Investors (FPIs)

Aug 21, 2018: SEBI had issued circular No. CIR/IMD/FPIC/CIR/P/2018/64 dated April 10, 2018 in order to strengthen know your client (KYC) framework for foreign portfolio investors (FPIs) in accordance with Prevention of Money–laundering (Maintenance of Records) Rules, 2005 (PMLA Rules). Accordingly, existing FPIs were provided a time frame of six months from the date of circular to comply with the requirements stipulated therein.

SEBI has received representations from some market participants in relation to the circular, inter-alia, seeking review and additional time for complying with the said circular.

In this regard, stakeholders may note that there is already a working group under the Chairmanship of Shri H.R. Khan, Deputy Governor (Retired), Reserve Bank of India with the following terms of reference:-

1. To advise SEBI on redrafting the FPI Regulations for simplification.

2. To advise SEBI on incorporating the provisions contained in the circulars, FAQs and Operational Guidelines issued by SEBI concerning FPIs, in the regulations itself, to the extent possible.

3. To advise on any other issue relevant to Foreign Portfolio Investors.

The working group was constituted by SEBI on March 26, 2018.

This working group will now also look into the various issues raised in the representations in relation to the circular dated April 10, 2018.  Further appropriate view in the matter would be taken after receiving the recommendations of the working group. In the meanwhile, it has been decided to extend the time frame for compliance with the said circular upto December 31, 2018.  The relevant circular no. IMD/FPIC/CIR/P/2018/124 dated August 21, 2018 is available at the web page “Circulars” on SEBI website.

Source: SEBI

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SEBI Circular No. IMD/FPIC/CIR/P/2018/124 dated August 21, 2018, reads as follows:

Amendment to SEBI Circular No. CIR/IMD/FPIC/CIR/P/2018/64 dated April 10, 2018 on Know Your Client Requirements for Foreign Portfolio Investors (FPIs)

1. SEBI vide Circular No. CIR/IMD/FPIC/CIR/P/2018/64 dated April 10, 2018 has prescribed Know Your Client Requirements for Foreign Portfolio Investors (FPIs).

2. The following timelines had been prescribed in the aforesaid circular:

2.1. Existing FPIs were required to provide the list of beneficial owners (BO), in the format prescribed at para 2(b) of the aforesaid circular, within six months from the date of the circular,

2.2. The existing FPI structures not in conformity with the requirement specified at para 2(c) of the aforesaid circular were required to change their structure or close their existing position in Indian securities market within six months from the date of the circular.

2.3. The existing FPIs or their investors identified on basis of threshold for identification of BO in accordance with Rule 9 of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005 who do not conform to the requirements prescribed at para 2(d) of the aforesaid circular, were required to ensure compliance within six months of the date of the circular.

2.4. In respect of para 2(g) of the aforesaid circular, the existing FPIs were required to provide the documents specified therein within six months from the date of the circular.

2.5. All existing FPIs whose clubbed investment in equity shares of a company is in breach of the provisions of Regulation 21(7) of Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 were required to ensure compliance within six months from the date of the circular (para 3 of the aforesaid circular).

3. The above listed timelines are hereby extended to December 31, 2018.

4. All other terms and conditions specified in the aforesaid circular dated April 10, 2018 shall remain unchanged.

5. This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992.

6. A copy of this circular is available at the web page “Circular” on SEBI website. Custodians/ DDPs are requested to bring the contents of this circular to the notice of their FPI clients.

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