SEBI Tightening up its P-Note norms to check on money laundering

Tightening up its norms to check any kind of misuse associated with P-Notes, market regulator SEBI today caused it to be mandatory almost all users of those overseas instruments to follow anti-money laundering (AML) law within India as well as asked their issuers in order to report any kind of suspected breach immediately.

Acting upon recommendations of the Supreme Court-appointed Specific Investigation Group on black money, SEBI tightened the due diligence specifications for issuance and transfer of controversy-ridden P-Notes and put the onus on investors to ensure the AML compliance.

The issuers would need to conduct regular review as well as report the entire transfer trail of Offshore Derivative Instruments (ODIs) -- commonly known as Participatory Notes or P-Notes -- to SEBI on a monthly basis besides the present requirement of reporting details of their holders.

Any change in P-Note regulations results in a significant impact on the markets often. On today as a SEBI board meeting was, markets plunged on anticipation of tightening of the norms sharply.
Here today after the meeting, SEBI stated its panel has approved additional steps for the purpose of improving the transferability and control over the issuance of ODIs.

P-Notes are instruments issued by registered foreign institutional investors to overseas investors typically, who would like to invest in the domestic stock markets without registering themselves directly in India, but need to go through a proper due diligence process still.

P-Notes make up for regarding 10-12 % of the total FII inflows, as towards over fifty per cent in the peak of stock market bull run in 2007. Total investment via ODIs was at Rs. 2 . 2 lakh crore at the final end of March 2016.

Rules happen to be tightened many times in recent years to check on any improper use of this route, but P-Notes have continued to court controversies still.

The Supreme Court appointed SIT on black money last year had suggested which SEBI ought to further strengthen its norms to keep a tab on beneficial ownership of P-Notes because they were popular by overseas investors and may be prone to misuse.

 

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