Ajay Tyagi meets FPIs today to discuss GAAR, KYC

General Anti-Avoidance Rule (GAAR), central know-your- customer (KYC) norms, and easing of compliance requirements will be some of the talking points between Securities and Exchange Board of India (Sebi) Chairman Ajay Tyagi and foreign portfolio investors (FPIs) when they meet on Wednesday (April 12).

Investors want the regulator to simplify procedures for registration as FPIs. One of the demands is to ease the screening process and documentation requirement for registration of investors coming in from jurisdictions compliant with International Organisation of Securities Commissions (IOSCO) or from those regions that follow rigid KYC norms.

Another demand is that banks that come from well-regulated jurisdictions but whose central banks are not members of Bank for International Settlements (BIS) should be given preferential treatment to meet compliance norms. Also, banks should be allowed to invest through pooled or omnibus accounts, which do away with the need for individual clients of these banks to register separately with the regulator.  

FPIs have been segregated into three categories according to their risk profile and the KYC requirements. Category-I FPIs include foreign central banks, sovereign wealth funds and government agencies. Banks, asset management companies and investment managers come under category-II. Category-III FPIs include hedge funds, which are subjected to the most rigorous compliance requirements.

Investors want Sebi to seek clarity from the Central Board of Direct Taxes (CBDT) on how GAAR would apply to investments directed from Mauritius, Cyprus and Singapore, countries with whom India has recently amended tax treaties.

GAAR, which seeks to prevent companies from routing transactions through other countries to avoid taxes, can be invoked through a two-stage process. The income-tax (I-T) department had, in January, issued clarifications on GAAR to address concerns of foreign investors and insisted that adequate safeguards were in place to prevent misuse of these provisions.

Difficulties with regard to shifting to the new central KYC platform will also be discussed. Investors are in favour of data migration from the existing KRA system to CKCY registry platform, and a continuance of the risk-based approach by Sebi and RBI towards assessing the profile of investors.

Investors want a common clearing corporation to boost liquidity management and lessen volatility of the rupee against the US dollar.

Despite the uncertainty around tax treaties, more than 3,000 new FPIs have registered with Sebi in the 11 months to February of the last financial year. The figure stood at 2,900 for the whole of FY16.

ON THE AGENDA

FPIs are likely to place a list of demands before Sebi chief Ajay Tyagi when they meet him on Wednesday. They want Sebi to:

• Simplify registration procedures
• Ease documentation for investors following stringent KYC norms
• Relax compliance norms for banks from well-regulated jurisdictions but which are not members of Bank for International Settlements (BIS)
• Provide clarity on how GAAR would apply to investments from Mauritius, Cyprus and Singapore
• Allow data migration from existing KRA system to CKCY registry platform
• Introduce a common clearing corporation to boost liquidity and lessen volatility of Rs  versus Rs