Circular issued to identify beneficial owners

The Securities and Exchange Board of India (SEBI) released a circular on 10 April 2018, which laid down the parameters to identify beneficial owners (BOs) for foreign portfolio investors (FPIs). Pursuant to an interim report, released on 8 September 2018 by the working group constituted under the chairmanship of HR Khan, SEBI held a board meeting on 18 September 2018 and subsequently issued two separate circulars on 21 September 2018, namely the Eligibility circular and the know your client (KYC) circular.

Eligibility circular. The Eligibility circular states that the beneficial ownership criteria as provided under the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005 (PMLAR), should be made applicable only for the purposes of KYC and not for determining eligibility of FPIs. The circular provides that participation by a single non-resident Indian/overseas citizen of India/resident Indian (NRI/OCI/RI) (including those of an NRI/OCI/RI controlled investment manager) should be restricted to 25% and in aggregate to below 50%. SEBI has further clarified that the above limits will not apply to FPIs investing only in mutual funds in India.

The circular also allows participation by RIs, through the liberalized remittance scheme approved by the RBI, in FPIs that are global funds that have an India exposure of less than 50%. It further states that NRI/OCI/RI should not be in control of FPIs (except for FPIs for which a no-objection certificate has been provided by SEBI). However, FPIs can be controlled by investment managers (IMs), which are owned and controlled by NRIs/ OCIs/RIs provided that: (1) the IM is appropriately regulated in its home jurisdiction and registers itself with SEBI as a non-investing FPI; or (2) the IM is incorporated or set up in India and appropriately registered with SEBI. SEBI has also clarified that a non-investing FPI may be owned and/or controlled by an NRI/OCI/RI.

The business law digest is compiled by Nishith Desai Associates (NDA). NDA is a research-based international law firm with offices in Mumbai, New Delhi, Bengaluru, Singapore, Silicon Valley, Munich and New York. It specializes in strategic legal, regulatory and tax advice coupled with industry expertise in an integrated manner.