SEBI May Up Disclosure Norms, Introduce KYC on P-Notes

At a likely board meet scheduled on May 20 to finalise changes in P-Note norms, SEBI may consider increasing reporting and compliance standards on them, sources say.

Further to the amendment in the Mauritius treaty, the Securities and Exchange Board of India (SEBI) is likely to tighten the norms for participatory notes (P-Notes) to curb round-tripping and restrict money laundering, reports CNBC-TV18 quoting sources.

At a likely board meet scheduled on May 20 to finalise changes in P-Note norms, SEBI may consider increasing reporting and compliance standards on them, sources say. The changes could include requirement of increased disclosures on transfer and prior consent of issuer on transfer, bringing P-Notes under know-your-customer (KYC) and anti money laundering norms and reporting suspicious transactions to the financial intelligence unit.

The new proposals follow recommendations made by the Supreme Court (SC) appointed Special Investigation Team (SIT) on black money, sources say. The new norms are expected to put the onus largely on the P-Note issuing entity to carry out reconfirmation of overseas derivative instruments (ODI) position on a semi-annual basis, submit reconfirmations reports or any breaches, capture audit trail of the beneficiaries at the onset, and maintain record for excess holding above prescribed threshold.

Periodical review and evaluation of controls and systems with respect to ODI’s and identifying investors holding in excess of predefined threshold in subscribing entities will also be the responsibility of the issuing entity.

KYC review will be carried out based on risk classification assigned to subscriber. SEBI will have to be roped in to take remedial action in case of any breaches.

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