Sebi plan to build KYC database of beneficial owners irks FPIs

MUMBAI: Large overseas fund managers such as Templeton, Fidelity and BlackRock have opposed the Securities and Exchange Board of India (Sebi) proposal to create a central database containing the personal information of all beneficial owners of offshore funds, said two people with direct knowledge of the matter. Such a database held by an external agency in India would violate the law in their home countries, they argue.

The issue pertains to disclosure of know-your-customer (KYC) information of beneficial owners (BOs). Sebi had issued a circular on April 10 last year asking foreign portfolio investors (FPIs) to identify the BO of a fund based on not just ownership but control as well. In cases where there is no significant BO based on economic ownership, fund managers and other senior management officials of the funds were to be considered BOs. All publicly pooled funds such as foreign mutual funds have no significant BO since they raise money from thousands of small unit holders. In such cases, the chief investment officers or other senior management officials become the BOs.

Stiff opposition from FPIs, especially non-resident Indians (NRIs), on this issue forced Sebi to water down the rule. The regulator restricted the new interpretation of beneficial ownership to KYC purposes. Under this, FPIs will have to submit KYC documents of beneficial owners to custodian banks, which in turn will share them with registrars.