Sebi bars FPIs not making disclosure

The Securities and Exchange Board of India (Sebi) has asked bourses to block the accounts of foreign portfolio investors (FPIs) that haven’t submitted the names of beneficial owners to custodians. Top investors based in the US and Europe such as Pacific Investment Management Co (Pimco), which manages assets worth $1.66 trillion globally, are said to be among those that hadn’t provided details by the March 20 deadline, said people with knowledge of the matter. Assets worth $5 billion have been blocked, they estimated.

The FPIs have been barred from making fresh investments in Indian markets but will be allowed to sell their holdings, they said.The capital market regulator has asked custodians to share the list of non-compliant FPIs with stock exchanges and has asked brokers not to execute trades on their behalf.

“About 70 per cent of the FPIs have submitted BO (beneficial owners’) details and complied fully with the know-your-client (KYC) requirement. Around 20 per cent have submitted the details at the last minute,” said one of the persons cited above. “While 10 per cent have not complied, Sebi has collected the statistics from custodians and shared the list with stock exchanges… The ban has started already.”


Sebi and Pimco didn’t respond to queries.

The regulator had issued a circular on April 10 last year asking FPIs to identify the beneficial owner of a fund based on not just ownership but control as well. In cases where there was no significant beneficial owner based on economic ownership, fund managers and other senior management officials were to be listed as such. Mutual funds, for instance, have no significant beneficial owner since they raise money from subscribers.

Stiff opposition from FPIs, especially non-resident Indians (NRIs), on this issue forced Sebi to ease the requirements.

The regulator restricted the new interpretation of beneficial ownership to KYC requirements.

Under this, FPIs would have to submit KYC documents of beneficial owners to custodian banks, which, in turn, would share them with registrars. Sebi asked registrars to create a centralised database that could be accessed by other market intermediaries with the consent of FPIs.

Many FPIs opposed the storage of details of beneficial owners with a third party because of data secrecy laws in their countries. However, Sebi was unwilling to relent since FPIs have complied with such requirements in other countries.

The regulator’s instructions were aimed at compliance with India’s money-laundering rules. Sebi requires that beneficial owners of FPIs with a general partner or limited partnership structure be identified on the basis of ownership, entitlement basis and control. For those FPIs based in high-risk jurisdictions, the threshold for beneficial ownership is 10 per cent.

Failure to submit beneficial ownership details within six months could invalidate registration and force an FPI to sell its Indian holdings.

“Most of the non-compliant FPIs are hedge funds, private equity funds and mutual funds,” said another person familiar with the development.

ET had reported on March 11 that large overseas fund managers, including Templeton, Fidelity and Blackrock had opposed Sebi’s proposal to create a central database containing personal information of all the beneficial owners of offshore funds. More than 9,300 FPIs are registered with custodians. The US, Mauritius, Luxembourg, Singapore and the UK account for the bulk of the FPI inflows.

Sebi has assured offshore funds that their data will be safe and is planning stiff penalties against entities or individuals trying to access confidential information without the regulator’s approval, ET had reported, adding that the regulator could also revoke the licence of such violators.