India: SEBI extends time for KYC compliance

September 18, 2018


In order to promote investment in India, the Government designs investor- friendly policies. One of the modes of Investment in India is through Foreign Portfolio Investment (hereinafter referred to as “FPI”). These investments are highly liquid and indicate the indirect control of the investor in the management. The FPI are made by a person resident outside India through capital instruments. It involves buying and selling of shares, convertible debentures of Indian companies, and units of domestic mutual funds at any of the Indian stock exchanges.

FPI laws in India

In India, FPI are governed under the provisions of the Securities and Exchange Board of India Act, 1992 as well as the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014. The authority monitoring the guidelines for FPI regulation is the Securities and Exchange Board of India (hereinafter referred to as “SEBI”).

FPI: Know Your Client

With a view to ensure proper client identification and avoid risk against illegal transactions, the SEBI laid down Know Your Client (hereinafter referred to as “KYC”) regulations on April 10, 2018 (hereinafter referred to as “SEBI circular”), in respect of the foreign portfolio investors in order to cater to requisite information and details.

The said circular lays down the procedure for identification and verification of beneficial owners

(hereinafter referred to as “BOs”) who ultimately own and control the FPI, format for reporting for BOs, bearer share structure. The KYC reviews the documentation related thereto.

The SEBI has brought an amendment to the aforesaid circular, on August 21, 2018 (hereinafter referred to as the “SEBI amendment circular”) which provides for the extension of timelines up to December 31, 2018 in respect of the following:

  • For requirement of foreign portfolio investors to provide a list of the BOs;
  • To change the FPI structure in order to ensure compliance to SEBI guidelines;
  • For compliance of 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;
  • The foreign portfolio investors concerned should provide an undertaking/ declaration to appropriate authorities in case of exempted KYC supporting documents.
  • To ensure compliance in case of existing foreign portfolio investors, whose clubbed investment in equity shares of a company are in breach of the provisions of Regulation 21(7) of Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014.

Tightened Noose

The SEBI circular issued in April, 2018 tightened the noose on the foreign portfolio investors in terms of KYC norms as well as stricter compliance. The SEBI amendment circular provides an extended time window in order to ensure the obedience to the SEBI circular.

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