Foreign Portfolio Investment

KYC Requirements for Foreign Portfolio Investors (FPIs)

The Foreign Portfolios Investors (FPI) willing to invest in India’s financial assets are required to register with the Designated Depository Participant. In order to access the eligibility requirements of Foreign Portfolio Investors, the Designated Depository participant is required to examine the applicant’s documents. Henceforth, this process of examining the documents of the FPI applicant is termed as Know Your Clients (KYC) under the Master Circular for Foreign portfolio Investors, Designated Depository Participants and Eligible Foreign Investors. Under the said circular, the FPI is required to provide KYC documents to the DDP, which upon completion, will be uploaded on the KYC Registration Agencies (KRA) portal for other market intermediates to access and complete their KYC requirements. The present article will discuss the requirement for KYC as per the said circular:

KYC Documentation Requirements for FPI

The first KYC requirement for FPI is the documentation requirements. The FPI shall produce the following documents:

Document Type	KYC Documentation Details	Category-I	Category-II
Applicant Level	MoA, Certificate of Incorporation, Prospectus Etc. Address Proof PAN Board Resolution FATCA or CRS Form Form or KYC Form	Required except Board resolution	Required
Authorised Signatories	Signatures List	Required	Required
Ultimate Beneficial Owner	List of Ultimate Beneficial Owners, including the details of intermediate BO Identity Proof	Required except identity Proof	Required

Other Valid Documents for KYC Requirements

The other valid documents for KYC requirements are:

1. Undertaking: An undertaking from FPI that, upon demand from regulators or law enforcement agencies, the relevant documents will be submitted to the intermediary.

2. FPI Category-I from High-Risk Jurisdiction:  The KYC documentation applied to FPI Category-II will be required from FPI category-I coming from a high-risk jurisdiction.

3. Prospectus and Information Memorandum: In lieu of an official contribution document, the prospectus and information memorandum can be used for KYC.

4. Valid FATCA or CRS Documentation: For the purpose of account opening, valid FATCA (Foreign Account Tax Compliance) or CRS (Common Reporting Standard) of OECD documents can be used for KYC.

5. E-PAN: The E-PAN issued by the Central Board of Direct Taxes can be produced by FPI for KYC purposes without the need for any certifications.

Other Conditions for KYC Documentation

The other conditions for KYC documentation are:

1. The FPI category-II registered under Regualtion5 (b) (i) of SEBI (MF) Regulations will provide KYC documents produced by FPI Category-I.
2. In the case of non-PAN related KYC documents, the local custodian can rely on KYC carried out by the entity of the same financial group, such as a Global Custodian or Investment Manager.
3. The intermediary is allowed to verify the PAN of Foreign Portfolio Investors from the authorised website of the Income Tax Department.
4. The requirement for PAN is not mandatory for UN entities or multilateral agencies exempted from paying taxes in India.
5. The requirement for board resolution or Authorised signatory is not required if there is no exchange of physically signed documents between the local broker, the FPI or its authorised representative.

Sharing KYC Information with Banks for the Opening of Bank Accounts of FPIs

The following conditions are to be fulfilled for KYC requirements for the opening of a bank account:

1. The intermediaries must share the relevant KYC documents with the banks based on appropriate authorisation.
2. A set of hard copies of the relevant KYC documents shall be transferred t to the bank through the authorised representative.
3. While transferring such documents, intermediaries shall certify that the documents are verified with the original or notarised documents. In this regard, the proper record of the transfer of documents shall be maintained at the intermediary and bank levels.

Depository Account by Foreign Portfolio Investor

The FPI can appoint only one custodian if a FPI holds a separate depository account in NSDL and CDSL.

Identification and Verification of Beneficial Owners

The following are the provisions for the Identification and Verification of beneficial owners:

1. The Beneficial Owners (BOs) are the natural persons who control or own the Foreign Portfolio Investors. They shall be identified as per Rule 9 of PLMLA (Maintenance of Records) Rules 2005. 
2. The BOs having a general partner or limited partnership shall be identified on an ownership or entitlement and control basis.
3. In relation to FPIs from ‘High-Risk Jurisdiction’, the intermediaries can apply lower materiality threshold limits of 10% for identification of the Beneficial Owner. The KYC details in this regard shall be collected in the same manner as collected from Category-II FPIs.
4. The materiality threshold to identify the BO must be first applied at the level of FPI. After that, the look-through basis must be applied to identify the BO of the intermediate shareholder or owner entity. In case the holding of BO and Intermediate shareholder or owner is equal and above the materiality thresholds in the FPI the identification shall take place through a look basis.
5. Moreover, identification is not required if the intermediate shareholder or owner enteritis is eligible for registration as Category-I FPI.
6. The term SMO or Senior Management Official for identification as BO would imply individuals who holds senior management position and makes every key decision relating to FPI.
7. There is no exemption given to the foreign company as per Rule 9(3) (f) of PMLA rules.
8. If lawyers or accountants represent the companies or trustees, the FPIs should provide information about the real owners of those companies or trusts. The BO exercising controls through agreements, arrangements, voting rights etc., shall be specified.
9. The BO should be identified, and the BO should not be a nominee appointed by another person. 

Periodical Review of KYC Requirement

The periodical reviews of KYC requirements mean ensuring that the documents, information or data collected are kept up to date by undertaking reviews of existing records on a periodical basis. While reviewing the KYC documents, the DDP may seek confirmation from FPI in regard to the change of information supplied earlier. Further, if there is a change in the information, the FPI should provide the following documents to the custodian.

Jurisdiction	FPI Category-I	FPI Category-II
High Risk	FPI registers under Regulation 5(a) (i): The period shall be every 3 years during the continuance of registration. Others: Annually	Annually
Non-High Risk	The period shall be every 3 years during the continuance of registration	Regulated entities: Every 3 years during the continuance of registration. Others: Annually

Secure Maintenance of Records

Another KYC requirement is maintaining the obtained records securely. The information may be provided to the intermediaries only on a “Need to know basis” basis. It should be provided using an authentication method wherein the intermediary can access the information from KRA using authentication such as OTP. In this regard, the KRA shall need to maintain the E-mail Ids of the Foreign Portfolio Investors.

Period for Maintenance of Records

The custodian must maintain the KYC records in original for a minimum period of 5 years from the date the transaction with the FPI is ended. Further in case if there is pending litigation, in that case, the information shall be maintained till such time the proceedings are completed.

Other Applicable Guidelines for KYC

The other guidelines for KYC requirements are:

1. The copies of the documents should be accompanied d by the originals for verification. In case the originals are not produced for verification, an authorised individual should attest the copies.
2. The translation must identify proof or address in a foreign language.
3. The name and address of the applicant should match the submitted documentary proof.
4. In case of more than one address, the proof for such addresses shall be enclosed.
5. The global custodian or local custodian can fill out the form if a reference has been provided under the Power of attorney.
6. In-person verification of non-individual clients can be done. Hover, the IPV of an individual client can be done via web camera.
7. The intermediaries can rely on the documents or information available from public sources when collecting documents or information for FPI. However, such documents or information shall be attested by a duly authorised individual of the intermediary.

Persons Authorised To Attest The Documents:

1. Officials of Multinational Foreign Banks
2. Officials of any bank regulated by RBI
3. Notary Public

Supporting Documents for KYC Requirements

The supporting documents for KYC requirements are:

1. Identity Proof: Identity card or documents bearing the applicant’s photo, such as a Driving License or passport etc., issued by the central or state government, statutory or Regulatory authorities and tax authorities.

2. Address Proof: the list of documents includes:

1. Any documents issued by the central or stated government or any regulatory authorities such as passport, Driving License etc.
2. Electricity Bill or Utility Bill
3. Passbook or Bank Account Statement
4. Power of Attorney
5. Constitutive Documents to establish Proof of Residency

Conclusion

The KYC requirements help the DDP to conduct the due diligence process in an orderly manner. It helps in determining the eligibility criteria for registration. The custodian shall scrutinise the documents provided by the FPI at the time of registration as a process of due diligence. It helps in ascertaining the identifying the FPI and helps in locating them. The KYC requirements act as a measure to protect the interests of the investors and maintain a database of the total FPIs. Henceforth, the DDP shall meet the KYC requirements as discussed above before registering the FPI.

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