SEBI plans to ease KYC norms for foreign funds with strong compliance record

Capital market regulator Securities and Exchange Board of India (SEBI) will issue revised Know Your Customer (KYC) norms for foreign institutional investors to trade in Indian equity markets.

SEBI plans to minimise documentation procedures under the KYC requirements for FIIs with a strong track record of compliance with Indian rules.

"Last week the Government of India amended the anti-money laundering rules providing for risk based approach. Next week we are going to formulate our regulations implementing this and a large number of long-only funds will find it easier to invest in India now," SEBI chairman UK Sinha said on Tuesday.

The changes are in line with the recommendations of the KM Chandrasekhar committee on 'Rationalisation of Investment Routes and Monitoring of Foreign Portfolio Investments, submitted to SEBI on 12 June.

The committee had proposed a risk-based approach to regulation of FIIs, under which documentation requirement for well regulated entities will be minimal.

"The approach to KYC will be risk based. The documents needed for registration and onboarding would be the simplest for Category I and most stringent for Category III. The requirement of submitting personal identification documents such as copy of passport, photograph, etc, of the designated officials of FPIs (foreign portfolio investors) belonging to Category I and Category II shall be done away with," SEBI said in a statement issued after its board meeting on 25 June.

SEBI is looking at providing more liquidity to the corporate bond market and the change in regulations comes at a time when FII investments are moving out of the country.

The measures are in the pipeline are expected to be announced in a few of days, according to Sinha.

FIIs are estimated to have pulled out around $9.24 billion from the Indian debt market between July and August 2013, mainly due to a lack of choice in debt instruments.

"Our medium and long term aim should be to provide a wide dispersal of clients who are investing in debt market in India from abroad," said Sinha while speaking at Express Group's `Idea Exchange' in New Delhi on Monday.

he added, "While you can't stop people who are doing pure arbitrage, we should put in some mechanism in place to encourage long-term investors."