10% FPIs non-compliant with beneficial ownership disclosure norms: Sebi

10% FPIs non-compliant with beneficial ownership disclosure norms: Sebi
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New Delhi, Mar 26: Foreign portfolio investors (FPIs), which do not comply with the Securities and Exchange Board of India’s (Sebi’s) new disclosure norms mandating them to provide details of ultimate beneficial owners (UBO) would face limited blockage of their accounts, say experts.
The regulator has found that about 10 per cent of the FPIs have missed the March 21 deadline for providing the details of the ultimate source of funds and persons who are controlling the funds. The regulator is learnt to have restrained these FPIs from making any fresh investment for 180 days according to the rules.
However, market experts do not foresee any knee-jerk reaction in markets, or even on investment inflows, as the regulator has given almost a year to comply.
“While such FPIs cannot make any fresh purchase of securities, they can continue to sell their existing securities and repatriate the money outside India. To say that the Indian assets of the FPI will get blocked is not correct, said Rajesh Gandhi, partner at Deloitte Haskins & Sells LLP.
He further explained that assuming the number of such FPIs is less than 20 per cent, I don’t think this will have any major impact on the market specially today when significant domestic money is flowing in the market. In any case, as soon as the FPI provides the required information, it can immediately start making purchases, Gandhi said.
During the inspection of the custodians of these FPIs, they (FPIs) expressed their apprehensions in providing the beneficial owner details as they were obliged by the confidentiality clause, said a regulatory source. However, about 80 per cent of them have made the disclosure about the ultimate source of the funds and persons who are controlling the funds, he added.
Sources say that brokers were being instructed to not execute fresh purchases of these non-compliant portfolio investors for six months. The non-compliant have few months to submit the details of beneficial ownership however if they fail to comply then the registration would go invalid and they may ask to sell their India holdings. Such funds must provide details of foreign investors who make collective investments in offshore schemes.
Sources say that Sebi wants to keep a tab on persons who are into activities such as money laundering and militancy funding, and have bad intent to hide behind these institutions in line with Prevention of Money Laundering Act.
“it is critical for the regulator to have identification of ultimate beneficial owner so that UBOs should not hide behind a maze of complex fund structures and come clean, said another expert.
Sebi, on its part, has made changes to ease the pain by defining a senior management official and doing away with clubbing investments based on common control. So, complying with the revised guidelines should become easier.
However, it has put in place certain disclosure rules to have better transparency and keep a check on the bad money flow.
Sebi, in its September 2018 circular, said that FPIs have to comply with the beneficial ownership criterion under PMLA provisions and should be made applicable for the purpose of KYC.
According to PMLA rules, the beneficial owner could be an investor or a shareholder of a fund house who can exercise the control over the FPI.