Tejesh Chitlangi, Partner, IC Legal, said, “The SEBI move is a balanced act since rather than imposing restrictions on the P-note issuance, which otherwise would have brought a lot of negativity in the market, it has concentrated more on strengthening the overall KYC checks and rightfully putting in more obligations on the issuer FPIs in the entire P-note issuance process”.
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A P-note is an instrument used by a foreign portfolio investor to buy Indian stocks without registering itself with the Securities and Exchange Board of India (SEBI). It is a black money and come under Money laundering act.
The board also wants P-Notes issuers to report all transactions that happen during a month (compared to only end of month holdings) in their monthly reports. “But due to illegal protection by the SEBI these are running and SEBI did no action till date”, it said.
The board has also approved of changes to Sebi’s consent norms so that all smaller cases – those without any market wide impact – are settled on payment of certain charges.
The Supreme Court today refused to entertain a plea seeking a direction to the Centre, RBI and market regulator SEBI that the offshore portfolio investors, who invest in Indian stock market through Participatory-notes, be bot allowed to withdraw the money till further orders.
Other proposals approved by the Board included relaxation in norms for Infrastructure Investment Trusts and for exempting the stock exchanges from transferring 25 per cent of their profit to the Core Settlement Guarantee Fund of Clearing Corporations.
Under the existing norms, an ODI subscriber can not be a resident in a country with an inadequate framework for compliance to the global standards for Anti-Money Laundering or Combating the Financing of Terrorism Regulations.
Even NRIs and Resident Indians are not permitted to transact in ODIs.
In China, Taiwan, Korea, Germany, the United Kingdom and the USA, among other countries, the norms pertaining to onshore KYC requirements for ODI issuers do not compulsorily require disclosure of details about the ultimate beneficial owner, as per an analysis by Sebi. These norms will be the same as that applicable for all other domestic investors.
In such cases, the ODI issuers will need to identify and verify the persons who control operations of these entities.
It has also been decided that ODI subscribers will have to seek prior permission of the original ODI issuer before transferring the instrument to another subscriber. Sebi’s board yesterday further tightened its norms to check any misuse of controversy-ridden P-Notes by making it mandatory for users of these overseas instruments to follow Indian anti-money laundering law and report any suspicious transactions immediately.
The board also wants P-Notes issuers to regularly review the KYC norms of high risk clients at least once a year.
The ODI Issuers would also be required to carry out reconfirmation of the ODI positions on a semi-annual basis.
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There are apprehensions that the stricter set of norms will make it costlier to invest in India through P-Notes as one of the major attractions of such instrument is cost-effectiveness and easier access.
