MUMBAI: The Securities and Exchange Board of India (Sebi) on Thursday tightened the norms governing the issue and transfer of participatory notes (P-notes) by asking the issuers of such instruments to follow the anti-money laundering law prescribed by India.
The regulator has also asked the issuing authority to provide monthly reports of complete transfer trail of such instruments and also report any suspicious transactions to the Fraud Investigation Unit (FIU). P-notes are offshore derivative instruments (ODI) issued by institutions investing in Indian markets to their overseas clients who are not willing to directly participate in equities.
A Special Investigation Team (SIT) on black money constituted by the Supreme Court has raised serious concerns regarding the ultimate beneficiaries of such offshore instruments and the potential misuse of this route for tax evasion and money laundering.
Earlier, any restrictions on the P-notes had resulted in a drastic fall in the domestic equities. Currently, the ODI issuers follow the know your customer (KYC) or anti-money laundering (AML) norms of either the jurisdiction of the end beneficial owner or of the jurisdiction of the ODI issuer.
In order to bring about uniformity in the KYC or AML norms, Sebi said that Indian KYC/AML norms will now be applicable to all ODI issuers. Further, ODI Issuers are required to identify and verify the beneficial owners in the subscriber entities, who hold in excess of the threshold limit as prescribed under the prevention of money laundering rules. The market regulator has also strengthened the norms regarding the transferability of ODIs....