MUMBAI: A lobby group representing global banks and asset managers, such as Blackrock, Amundi, BNY Mellon and Capital Group, has written to the Securities and Exchange Board of India opposing the HR Khan committee recommendation that would give the capital markets regulator more inspection powers.
The panel, in its report, proposed that Sebi should have powers to summon and inspect additional documents of those foreign portfolio investors (FPIs) which come from high risk jurisdictions.Currently, FPIs submit only information of their beneficial owners (BO) to Sebi.
However, the committee now wants the market regulator to have powers to ask for more details including complete investor data if the fund is based out of a high-risk jurisdiction.The Asia Securities Industry and Financial Markets Association (ASIFMA) has questioned the need for Sebi to have such additional powers.We are concerned that this (proposal) is too broadly defined, ASIFMA said in the letter on June 14.
Clarification would be welcome to establish what type of documents would be expected when mentioning complete investor details.The industry body has also expressed concerns about reintroduction of the concept of highrisk jurisdictions.
Last year, Sebi tried to introduce the concept, but a backlash from FPIs forced the regulator to withdraw it.These reservations of FPIs primarily stem from privacy related concerns.
Foreign funds are not comfortable sharing their complete investor information with Sebi, said a global custodian on condition of anonymity.Also, foreign funds are trying to comply with the newer privacy norms that are being implemented in their home countries.In many cases, the FPI will not be in a position to provide the complete investor information since they themselves dont have the data, the custodian said.
For instance, a large number of FPIs are actually fund of funds -- which hold a portfolio of several other funds.
Ascertaining client details in such cases would be difficult.Sebi had tweaked the Know Your Customer (KYC) requirements for FPIs in September last year and made it mandatory for them to submit the identification documents of their beneficial owners.
This has already added to the compliance burden on FPIs, say experts.
While Category I FPIs are exempt from these requirements, category II FPIs, who hold bulk of the FPI assets in India, have been impacted by the new KYC requirement.The HR Khan committee said these special requirements should be applied to funds coming from high-risk jurisdictions only.
However, there is no clarity yet about which countries would feature in the high-risk list.
Last year, Sebi tried to implement a common high-risk jurisdiction list, but it was forced to go back on the proposal due to stiff opposition from FPIs.
The list essentially comprises the countries whose transparency standards are not up to the mark and aims to impose additional compliance requirements on funds coming from such countries.FPI Body Against More PowersWe suggest that Sebi clarifies which countries are on the list of high-risk jurisdictions, said the ASIFMA letter.
As became evident last year, it is impossible for the industry to agree on a common list of high-risk jurisdictions.
The regulator had asked global custodians to draw a consensus list of high-risk jurisdictions.
However, each of the custodian bank has its own metrics to decide risk.
The issue escalated after some custodians included popular investment destinations such as Mauritius in the list.Sebi is not willing to come out with any standard list of highrisk jurisdictions as it could impact Indias diplomatic relations with the countries.
Following the concerns about high-risk jurisdictions list, Sebi asked each custodian to maintain its own list.69926891698841296971920669487472