Know Your Client requirements for Foreign Portfolio Investors (FPIs)
Summary
This circular mandates that the beneficial ownership criteria from the PMLA Rules apply to KYC processes for Foreign Portfolio Investors rather than determining their eligibility. It establishes specific identification, verification, and periodic review requirements for Beneficial Owners across different FPI categories. The document outlines compliance timelines, data security protocols, and record-keeping obligations for intermediaries. Annex A provides a tabular format for listing Beneficial Owners, requiring details such as name, tax residency, and shareholding percentage. Annex B illustrates how to identify intermediate material shareholders or owners on both ownership and control bases within an FPI structure. The document mandates that the FPI certify the completeness of the BO list and notes that individuals below specific holding thresholds need not be declared.
Text
Beneficial ownership criteria in Prevention of Money-laundering (Maintenance of Records) Rules, 2005 should be made applicable for purpose of KYC and not for determining eligibility of FPIs.
Beneficial Owners are natural persons who ultimately own or control an FPI and should be identified in accordance with Rule 9 of the PMLA Rules.
In respect of FPIs coming from high risk jurisdictions, intermediaries may apply lower materiality threshold of 10% for identification of BO.
Materiality threshold should be first applied at the level of FPI and next look through basis shall be applied to identify the beneficial owner of the intermediate shareholder/ owner entity.
Senior managing official means an individual as designated by the FPI who holds a senior management position and makes key decisions relating to the FPI.
No foreign company shall be entitled to exemption under Rule 9(3)(f) of PMLA Rules.
FPIs should provide information of the real owners/ effective controllers of companies/ trusts represented by service providers like lawyers/ accountants.
Offshore Derivative Instrument issuing FPIs shall also identify and verify the BOs in the subscriber entities.
KYC review should be done based on risk categorization; yearly for Category III and Category II FPIs from high risk jurisdictions.
Audited Annual financial statement or a certificate from auditor certifying net worth may be obtained from Category III FPIs.
FPIs concerned should submit an undertaking to DDP/ Custodians that upon demand by Regulators/ Law Enforcement Agencies, exempted documents would be provided.
Category III FPIs are exempted from submission of proof of address of BOs, Senior Management and Authorised Signatories if declaration on letter head is provided.
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Source: SecMarx — Know Your Client requirements for Foreign Portfolio Investors (FPIs). Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.