Sebi's bid for info of FPI investors hits a hurdle

Large investors in foreign funds and persons controlling them are unwilling to disclose their personal information such as mobile number, email ID and income details with Indian depositories and the Securities and Exchange Board of India (Sebi).Top multinational banks, which act as custodians of these offshore funds (or foreign portfolio investors (FPIs) have recently told the capital market regulator about the reluctance to share certain details sought by the depositories on the grounds of data confidentiality.Sebi has called a meeting this week with top custodians, including JP Morgan, Citi, Deutsche Bank, Standard Chartered and BNP, to discuss their concerns, sources told ET.According to a directive, new FPIs seeking registration with Sebi for trading on Indian stock exchanges will have to give the information from June 1 while existing FPIs will be required to update information about their ‘beneficial owners’ (BO) from end July.Beneficial ownership, in regulatory parlance, is determined either by contribution to the fund or control and management of the FPI entity. BOs are typically investors with 25% or more share in the fund corpus of FPIs, which are structured as corporates. But the regulatory threshold for BO is lower at 15% if the FPI is a trust or partnership, and 10% if the FPI vehicle is set up in a high-risk jurisdiction. Alternatively, persons with no investments but having a significant say in the running of the fund are also considered as BOs.For regulatory authorities, the new rules to collect information on final investors in a fund are aimed at curbing round-tripping and money laundering transactions as well as violations of foreign holding restrictions in listed companies.Strict Protocols on Data Confidentiality“The regulator would like to know details of the ultimate beneficial owner, or the last person owning the fund behind multiple holding entities. But several operating FPIs and institutional investors have strict protocols on data confidentiality. Sharing email IDs and mobile numbers of the beneficial owners are commonly not permitted under their operating documents. Further, given that these KYC (know your customer) attributes are not part of the KYC asks under the Common Application Form, FPIs may find it difficult to furnish such details. In any event, the objective of the KYC attributes is to safeguard retail investors. It makes sense to keep institutional investors, such as FPIs, out of the purview,” said Richie Sancheti, Partner, Algo Legal.Till now, FPIs were required to give the name, address, date of birth, tax residency jurisdiction, nationality, beneficial ownership percentage and tax residency number.New rules stipulate mandatory collection of six KYC attributes which include name, address, PAN (permanent account number), valid mobile number, email ID and income range. Failure to update could result in blocking of accounts of existing FPIs.Custodians operate the account of their FPI clients and undertake settlements on the market for such entities. These clients are required to provide power of attorney to enable the custodians to complete the transactions. “As a result all trades settled through the custodians are undertaken on the basis of clients’ instructions and clients are aware of movements in their accounts. Many clients, particularly international investors, have strict protocols and do not permit sharing of the personal mobile numbers. Foreign investors have concerns with regards to capture of this personally identifiable information in the context of data privacy and data confidentiality requirements under their own regulations. The mobile number field for such entities are always left blank. Trade details for such institutional clients are reported via SWIFT messages either daily or month end messages by the custodian...This has been conveyed to Sebi by some of the custodians,” said a senior official of a large market intermediary.The email ID updated on the demat account of FPIs is of the local custodian to enable the custodian to receive all communications related to the corporate action benefits like dividend, rights, and bonus.The custodians have said that the KYC for FPIs were determined after consultation with the ministry of finance and Sebi, and incorporating additional details like mobile numbers and income details, which are not required as part of risk-based KYC regulations, would require changing the application form for FPIs.

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