Know Your Client (KYC)
SEBI has mandated KYC norms for FPIs that need to be complied with for trading in the Indian capital markets
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- Know Your Client (KYC)
FPIs are classified into two categories as part of a risk-based approach adopted towards customer identity verification (i.e., KYC). Accordingly, documentation requirements for FPIs vary as per the category of the FPI. The applicant shall be required to fill-in the standard KYC details in the Common Application Form (CAF) and provide the requisite supporting documents as per applicable category.
| Document Type | KYC Documentation Details Category I | KYC Documentation Details Category II |
|---|---|---|
| Applicant Level | Common Application Form | Common Application Form |
| Constitutive Docs (MoA, COI, Prospectus, etc.) | Constitutive Docs (MoA, COI, Prospectus, etc.) | |
| Proof of Address | Proof of Address | |
| PAN (tax id) | PAN | |
| FATCA/ CRS Form | FATCA/ CRS Form | |
| Board Resolution | ||
| Senior Management | List of Directors | List of Directors |
| Authorised Signatories | List and Signatures | List and Signatures |
| Beneficial Owner (BO) | List of BO including the details of Intermediate BO | List of BO including the details of Intermediate BO |
| Proof of Identity |
Periodic KYC
To ensure accurate and up-to-date customer information and ensure ongoing compliance with regulations, periodic review of the KYC based on risk categorisation of the FPI is carried out.
FPI KYC Review Periodicity Based on Risk Categorization
| Jurisdiction | FPI | |
|---|---|---|
| Category-I | Category-II | |
| High Risk | Government and Government related investors – Every 3 Years Others – Annually |
Annually |
| Non-High Risk | Every 3 Years | Regulated entities - Every 3 Years Others - Annually |
Note: Jurisdiction is categorized into High and Non-High Risk based on FATF Sanction List.
Identification and Verification of Beneficial Ownership
- Beneficial Owners (BOs) are the natural persons who ultimately own or control an FPI and should be identified in accordance with Rule 9 of the PML Rules
- The materiality threshold for identification of BOs of FPIs based on controlling ownership interest (or ownership/ entitlement) is the same as that prescribed under PML Rules:
- 10% in case of Company and Trust
- 15% in case of Partnership Firm, and unincorporated Association of Persons
- For FPIs coming from ‘high-risk jurisdictions’, a lower materiality threshold of 10% for identification of BO may be applied, with KYC documentation as applicable for Category-II FPIs
- The materiality threshold to identify the BO should be first applied at the level of FPI. Thereafter, the look-through principle to be applied to identify the BO of the material shareholder/ owner entity
- If no material shareholder/ owner entity is identified in the FPI using the materiality threshold, BO would be the Senior Managing Official (SMO)
- BO should not be a person mentioned in United Nations Security Council’s Sanctions List or from jurisdiction which is identified in the public statement of FATF as:
- A jurisdiction having a strategic Anti-Money Laundering (AML) or Combating the Financing of Terrorism (CFT) deficiencies to which counter measures apply
- A jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the FATF to address the deficiencies
- FPIs are required to maintain the list of BOs as identified by above guidelines, and is to be provided in specified format.
KRA serves as a centralized repository of KYC records in the Indian securities market. KYC documents are uploaded by intermediaries onto the KRA portal, ensuring seamless access across market participants.
Upload of KYC Information
Custodians or intermediaries (like brokers) must upload updated KYC details of clients to the KRA portal within 10 days of account opening or receiving any modification request.
Consent-Based Mechanism (CBM) – Applicable for FPIs
To protect personal data of FPIs, KRAs have implemented a Consent-Based Mechanism, with key features as follows:
- Consent Flag: Indicates whether KYC downloads require prior consent.
- Without Consent: Allows download; FPI is notified.
- With Consent: Notifies authorised contact(s) for approval before download.
- Authorisers: FPIs must nominate 1 to 3 authorised contacts to manage consent.
- Modification Alerts: When KYC data is updated, all intermediaries linked to the FPI are notified and receive access to the modified details.
- Delinking on Closure: Upon termination of relationship with an intermediary, the FPI or intermediary must notify the KRA to delink the KYC record.