SUMMARY
Foreign portfolio investors (FPIs) argued that sharing KYC database will violate their home country’s law
In 2018, SEBI had asked FPIs to submit KYC documents of its beneficial owners to custodian banks
In the last six trading sessions, FPIs invested around INR 5,300 Cr in Indian equity markets
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Global investment management firms such as Franklin Templeton, Fidelity Investments and BlackRock have reportedly opposed the Securities and Exchange Board of India’s (SEBI) proposal to prepare a central database with the personal information of all beneficial owners of foreign funds.
They have argued that sharing such a database with an external agency in India would violate their domicile country’s law, according to an ET report.
In April 2018, SEBI had issued a circular regarding know-your-customer (KYC) requirements for foreign portfolio investors (FPIs), especially beneficial ownership (BO) related disclosures. The said circular threatened the disqualification of all Overseas Citizens of India (OCIs), Persons of Indian Origin (PIOs) and Non-Resident Indian (NRIs) from investing in India, which was predicted to result in the outflow of $75 Bn managed by them.
In response to such concerns, SEBI released a new circular in September 2018, which had eased the KYC guidelines for the FPIs. The September amendments noted that the Prevention of Money Laundering Act (PMLA) rules should be made applicable for KYC purpose only and not for determining FPIs’ eligibility. Further, it said that the clubbing of the investment limit for FPIs should not be done on the basis of the beneficial owner, as per PMLA rules.
Under this, FPIs were required to submit KYC documents of beneficial owners to custodian banks, which will further share them with registrars. Most of the public sourced funds such as foreign mutual funds have no major beneficial ownership since they raise money from thousands of small shareholders. In this case, the chief investment officers or other senior management officials become beneficial owners.
In the past six trading sessions, foreign investors have infused around INR 5,300 Cr. in the Indian equity markets. This growth in investment came after the January’s pullout of INR 5,264 Cr. by foreign portfolio investors. Before that, the FPIs had invested INR 5,884 Cr. in the stock markets during the period of November to December 2018, as reported by Press Trust of India (PTI)
As per deposirites data, FPIs had invested INR 5,273 Cr. in equities during February 1st to 8th. However, they took out a sum of INR 2,795 Cr. from the debt market during the period under review.
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