Why in the News
Non-resident Indians (NRIs), Overseas Citizens of India (OCIs) and foreign nationals can now complete know your customer (KYC) onboarding to Indian securities markets digitally from overseas, in place of the earlier, stricter norms. The Securities and Exchange Board of India (SEBI) has relaxed the norms to make it easier for them to invest in India.
What is KYC, and who carries it out?
- KYC checks: KYC is the set of identity and address checks a regulated firm completes before opening an investor’s account, to prevent misuse such as money laundering.
- Intermediaries: Investors complete KYC with SEBI-registered intermediaries, such as stockbrokers and depository participants, which open and service their market accounts.
What has SEBI changed?
- Digital onboarding: NRIs, OCIs and foreign nationals can now complete the whole onboarding process digitally.
- Documents from abroad: They can submit their KYC information and supporting documents to SEBI-registered intermediaries from overseas.
Why only FATF-compliant countries?
- Eligibility condition: The digital route is open only to individuals living in countries that comply with the standards of the Financial Action Task Force (FATF), the global body against money laundering and terrorist financing.
- Safeguard: Limiting the route to these countries means the investor’s home jurisdiction already applies anti-money laundering rules, which lowers the risk of misuse.
Conclusion
SEBI has revised its KYC framework to let overseas individuals onboard digitally. How intermediaries verify that an investor lives in an FATF-compliant country will decide how far the relaxation widens access.
Back2Basics: Financial Action Task Force (FATF)
- Formation: Set up in 1989, with its headquarters in Paris, France.
- Mandate: Sets standards and promotes legal, regulatory and operational measures against money laundering, terrorist financing and related threats.
- Membership: 39 members, made up of 37 jurisdictions plus the European Commission and the Gulf Cooperation Council (GCC).
- Reviews: Publishes Mutual Evaluation Reports on how well countries apply its standards.
Matching Previous Year Question
“[2019] Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock market without registering themselves directly? (a) Certificate of Deposit (b) Commercial Paper (c) Promissory Note (d) Participatory Note ANSWER: (d)”
