Sebi asks reporting fin institutions to give certification of FATCA compliance annually

Reporting financial institutions have to give certification of their compliance with FATCA to markets regulator Sebi on an annual basis as well as put in place a system to validate information collected under this law.

The Foreign Account Tax Compliance Act (FATCA) was enacted by the US in 2010. India and the US have a tax information sharing agreement under it that enables automatic exchange of financial information between the two countries.

Sebi today issued a circular on due diligence and reporting requirements under FATCA and Common Reporting Standards (CRS) for reporting financial institutions.

These institutions have been advised to take necessary steps to ensure compliance with requirements for carrying out the necessary due-diligence and reporting for Foreign Portfolio Investors (FPIs).

They have to certify to the regulator on annual basis regarding their compliance with various provisions relating to FATCA. The certificate would be a part of the audit report on internal controls submitted to Sebi annually, the regulator said.

Besides, they have to "create a process/system to capture and validate the information collected through valid FATCA/ CRS declaration forms".

The circular has been issued to Designated Depository Participants (DDPs) and custodians of securities.

According to the circular, DDPs should grant Sebi registration to a foreign portfolio investor only after obtaining valid self-certification.

"DDPs shall submit a certificate in respect of new registration(s) granted during every month at the end of the month that all duediligence procedures, including obtaining of valid self-certification/ FATCA/ CRS declaration, have been followed before granting the said registration to FPI," it added.

The regulator noted that it would examine the compliance regarding certificate at the time of inspection of DDPs and custodians.

Among others, the reporting financial institutions have to develop a framework for carrying out due diligence procedures and for maintaining reporting information.

Under the FATCA pact, foreign financial institutions in India would be required to report information about US account holders/taxpayers directly to the Indian government, which would be then passed on to the US Internal Revenue Service.