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Know Your Client (KYC) Requirements for Foreign Portfolio Investors

Know Your Client Requirements for Foreign Portfolio Investors

SEBI had issued a circular (dated April 10, 2018) to strengthen the 'Know your Client' (KYC) framework for Foreign Portfolio Investors (FPIs) in accordance with Prevention of Money-Laundering (Maintenance of Records) Rules, 2005. Accordingly, existing FPIs were provided a time frame of six months from April 10, 2018 to comply with the KYC requirements listed in the circular.

Some of the KYC requirements are stated are as follows:

• Existing FPIs to provide the list of beneficial owners as per the format provided by SEBI in its circular dated April 10, 2018.
• The existing FPI structures that are not in conformity with the requirement as specified in SEBI circular dated April 10, 2018 are required to change their structure or close their existing position in Indian securities market.
• The existing FPIs or their investors identified on basis of threshold for identification of beneficial owners in accordance with Rule 9 of the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005, who do not conform to the prescribed requirements are required to ensure compliance.
• All existing FPIs whose clubbed investment in equity shares of a company is in breach of the provisions of Regulation 21(7) of SEBI (FPIs) Regulations, 2014 are required to ensure compliance.

SEBI had received representations from some market participants in relation to the said circular, inter-alia, seeking review and additional time for complying with the same. In this regard, a working group was already constituted by SEBI on March 26, 2018 with the following terms of reference— (a) to advise SEBI on redrafting the FPI Regulations for simplification; (b) 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 and (c) to advise on any other issue relevant to FPIs.

This working group will now also look into the various issues raised in the representations in relation to the circular dated April 10, 2018. In the meanwhile, it has been decided to extend the time frame for compliance with the said circular upto December 31, 2018.

For more information, please check out the attached circular.

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