Markets regulator Sebi today came out with a detailed framework in order to identify and verify beneficial owners of foreign portfolio investors (FPIs).
Beneficial owner (BO) is the natural person, who ultimately owns or controls an FPI.
Under the framework, beneficial ownership of FPIs having structure of company or trust should be identified on controlling ownership interest and control basis.
In case of partnership firm and unincorporated association of individuals, BOs should be identified on ownership or entitlement basis, the Securities and Exchange Board of India (Sebi) said in a circular.
In order to bring consistency, Sebi has asked Category II and III FPIs to provide list of their BOs in a prescribed format.
Besides, they need to disclose to Sebi about name and address of the beneficial owner; whether they are acting alone or together through one or more natural persons as group, with their name and address; tax residency jurisdiction; BO group's percentage shareholding capital or profit ownership in the FPIs.
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According to Sebi, this list should be certified by FPI and such overseas investors should also certify that there are no other BOs other than those referred in list.
The existing FPIs should provide the list of BOs within six months.
The regulator said that non resident Indians (NRIs), overseas citizen of India (OCI) cannot be BO of FPIs. However, if an FPI is Category II Investment manager of other FPIs and is non-investing entity, it may be promoted by NRIs or OCIs. Further, it said that that resident Indian cannot be a BO of FPI.
Clarifying on KYC documentations required for category III FPIs, which are high risk investors, Sebi said that audited annual financial statement or a certificate from auditor certifying networth need to be obtained from such overseas investors.
In case of new funds, companies, family offices, the audited financial statement of promoter person may be obtained.
In respect of exempted documents, concerned FPIs should submit an undertaking to designated depository participant, custodians that upon demand by regulators or law enforcement agencies, the relevant documents would be provided. Further, since category III FPIs are high risk investors, Sebi said that 'declaration on letter head' be provided by them.
Such high risk investors have been exempted from furnishing certain supporting KYC documents depending on risk involved.
In a major revamp, Sebi in 2014 had released norms that had clubbed different categories of foreign investors into a new class called FPIs.
Under the regime, FPIs have been divided into three categories as per their risk profile and the KYC (know your client) requirements, while other registration procedures have been made simpler for them.