News ECG: According to two sources, a lobby on behalf of foreign portfolio investors would contact India’s market regulator to request a reassessment of the recently strengthened standards for the beneficial owners of offshore funds.
The Securities and Exchange Board of India (SEBI) issued an order to foreign banks that act as custodians for these investors in response to concerns expressed in January regarding offshore investments in Adani Group entities.
A consensus is emerging to send a representation to SEBI through the Asia Securities Industry & Financial Markets Association, according to one of the people, a representative of one of these overseas banks (ASIFMA).
Also Read Elon Musk is the richest person in the world again
The speaker agreed to remain anonymous because the conversation was private. Insights from Reuters through email received no quick response from SEBI. In a reply email, ASIFMA stated that it was still getting in touch with its members.
In the first week of February, SEBI wrote a letter to custodian banks requiring that they get in touch with their FPI clients by March and provide information on beneficial owners by the end of September. If not, funds would have to withdraw their stake by March 2024, according to Reuters.
The regulator went a step further and said that, in cases where there is no obvious beneficial owner, a senior parent fund official must be designated as the ultimate beneficial owner and may be held liable if the subsidiary fund violates Indian law. The sources claimed that this has scared investors.
Providing a beneficial owner’s information or that of a fund’s senior official is a standard practice in countries like Hong Kong and Singapore, according to the first source. “The obligation to reveal the senior official details of the parent fund makes India an anomaly,”
A regulatory official who also spoke on the record under the condition of anonymity said that the SEBI has asked for these specifics to be provided for all presently registered funds as well as any new funds before they are registered. According to Indian law, an ultimate beneficial owner is a person who holds 25% of the fund.
The cutoff point is 10% for hazardous jurisdictions, such as those that don’t adhere to global financial action task force standards. The term “beneficial owner” is applied to senior management if the fund does not have investors who match the criterion.
The second source, a foreign banker, stated, “We are concerned about the extra accountability. That can be chalked up to an enhanced KYC (know your customer) need to identify a senior officer of the parent fund as a beneficial owner.
The second source, a foreign banker, stated, “We are concerned about the extra accountability. That can be chalked up to an enhanced KYC (know your customer) need to identify a senior officer of the parent fund as a beneficial owner.
Richie Sancheti, the founder of Richie Sancheti Associates, a law company that specializes in fund structures, warned that holding someone accountable who has no voice in the decision-making process of a fund could prevent it from operating normally.
Using the G20 platform, SEBI is also urging increased cooperation from offshore countries. “Countries like Mauritius and the UAE contribute significantly to foreign flows in India but are not FATF member countries,” the regulatory official said.
