Overseas fund managers such as Templeton, Fidelity, and Blackrock have opposed SEBI’s proposal to create a central database of personal information of all beneficial owners (BOs) of offshore funds, reports the Economic Times. The firms have said that the proposed database would violate laws in the companies’ countries of origin.

In its April 2018 circular, the SEBI modified its KYC requirements such that the basis for identifying beneficial owners (BOs) for FPI (foreign portfolio investments) would now be control, and not just ownership. The circular then mandated that all BOs provide their name and address, date of birth. nationality, their stake in the FPI, and any of the three documents: tax residency number, social security number or passport number. It also included a requirement for additional audited financial documents for high risk clients.

Privacy and data security concerns raised

Months after the circular was released, owners of FPIs and industry lobby groups raised privacy concerns with the SEBI (regarding the circular), stating that the KYC norms would clash with global data privacy laws, and that investment firms are uncomfortable with sharing personal information of their employees.

Further, the people said there were data security concerns, and that “no one is quite sure if India has the right infrastructure in place to ensure adequate security”.

SEBI’s KYC circular

SEBI’s April circular amended its KYC requirements for all foreign portfolio investors (read circular pdf here). Here are the main requirements of the circular:

1. Identifying BOs and KYC data requirements

The regulator said beneficial owners (BOs) would now be identified on the basis of control and not just ownership. The SEBI had then set a deadline of six months. The KYC requirements include personal information including date of birth, social security number, passport number, etc.

Accordingly, BOs of FPIs having structure of company or trust should be identified on controlling ownership interest (also termed as ownership or entitlement) and control basis. The BOs in case of partnership firm and unincorporated association of individuals should be identified on ownership or entitlement basis.

2. Fund managers to be BOs

In case there is no significant BO of a FPI, the fund managers and other senior management officials of the FPI shall be considered the BO. Its worth noting that all publicly pooled funds such as foreign mutual funds have no significant BO since they raise money from small unit holders.

3. KYC requirement for high risk clients 

The circular requires high risk clients to comply with a KYC requirement applicable to Category 3 foreign portfolio investor. Such KYC data includes audited annual financial statement or a certificate from the auditor validating the investor(s)’s net worth. Additionally, KYC reviews need to be conducted for such clients every year, as opposed to every 3 years for other investors.