Foreign Portfolio Investors (FPIs) coming from countries which are not members of the Financial Action Task Force (FATF) could have to meet stricter disclosure standards, and face greater scrutiny and regulatory hurdles.
The proposal, unlikely to go down well with Mauritius, would place FPIs based in the Indian Ocean tax havens and jurisdictions such as Cyprus, British Virgin Islands and Cayman — none of which belong to 37-member FATF club — at a disadvantage to the funds located in FATF-compliant countries like Singapore, Hong Kong, Luxembourg, The Netherlands, US, Canada, UK and others. FATF is an inter-governmental policy-making body that was established in the 1989 Paris summit of G7 amid mounting concerns over money laundering. India became its in 2010.
The proposal (to make FATF a benchmark) was submitted to SEBI a week ago by a high-profile committee, three persons aware of the development told Economic Times.
The committee headed by former RBI deputy governor HR Khan was constituted by the Securities Exchange Board of India (SEBI) to look into FPI related issues. Significantly, it comes a month after SEBI assured a delegation from Mauritius that there would be no new list of ‘high-risk countries’.
Over several meetings in the month preceding that, SEBI officials had verbally directed banks and institutions acting as custodians (of FPIs) to draw a list of high-risk jurisdictions. The plan, however, was dropped amid custodians failing to arrive at a consensus on high-risk countries and FPIs and Mauritius authorities asking Sebi to review the decision.
But the unwritten resolution to put stringent anti-money laundering rules for certain countries in place has not been dropped. In fact, it’s now being pursued in another way — plausibly at the instance of New Delhi. Instead of leaving it to the discretion of custodians and grappling with multiple lists prepared by different MNC banks in accordance with their respective risk perceptions, the market regulator will now consider Khan panel’s recommendation to treat FATF and non-FATF members differently. Though neater and less arbitrary, some think it could be a harsher move…
Source : The Economic Times