Sebi To Soon Take Call On Tightening P-Note Norms

Mumbai: Looking to prevent money laundering, Securities and Exchange Board of India Chairman U K Sinha on Thursday said the regulator is in discussions with the industry on tightening the KYC (know your client) mechanism for participatory notes or P-Notes and will take a final decision on it soon.

The discussions are based on suggestions by the Special Investigation Team (SIT) on black money appointed by the Supreme Court.

"The SIT, on black money, has made some suggestions to us about certain improvements in the P-Note mechanism," Mr Sinha told reporters on the sidelines of an APREA conference on REITs (real estate investment trusts) and InvITs (infrastructure investment trusts).

"We have been holding discussions with the industry on this and very soon will take a call on it," he said.

The Sebi chief noted that while suggestions from the SIT have come in this regard, the regulator has covered a lot of ground for the KYC mechanism in the last five years.

"So what was prevalent in the country during 2001 scam... Since then, we have covered lot of ground," Mr Sinha added.

He said Sebi has under P-Note norms covered eligibility criteria and reporting standards, among other things. "Due to this, Sebi has information on all P-Note transactions."

The SIT had last year suggested that Sebi should further strengthen norms to keep a tab on beneficial ownership of P-Notes as they were widely used by foreign investors and could be prone to misuse.

According to the Sebi chief, foreign investors have been "persuaded" with regard to these suggestions "but in view of the discussions...on what Sebi is proposing, they are willing to accommodate".

The regulator plans to put in place six specific changes to KYC norms and transferability of offshore derivative instruments (ODIs), commonly known as P-Notes, in this regard.

The proposed changes include mandating the issuers of P-Notes to file suspicious transaction reports (STRs), if any, with the Indian Financial Intelligence Unit (FIU) in relation to the ODIs issued by them.

On the KYC norms, while current regulations also mandate that ODIs can be issued only after compliance with the KYC requirements, the issuer entities have been adopting either the Indian AML (anti-money laundering) norms, norms in the jurisdiction of the issuer or the norms in the jurisdiction of the end beneficial owner or the ODI subscriber, it was earlier reported.