Regulatory Alert - SEBI makes it mandatory to provide Legal Entity Identifier for FPIs

Background

Legal Entity Identifier (LEI) code is a unique global 20-character code to identify the legal entities that engage in financial transactions. Post the global financial crisis, LEI is conceived as a key measure to improve the quality and accuracy of financial data systems for better risk management.

Presently, Foreign Portfolio Investors (FPI) are required to provide their LEI details in the Common Application Form (CAF), used for registration and account opening on a voluntary basis. It has now been decided to mandate the said requirement of providing LEI details for all non-individual FPIs. vide circular¹ dated 27 july 2023 issued by the Securities Exchange Board of India (SEBI).

We, at BDO in India, have hereunder analysed and summarised the changes in the circular:

• Reserve Bank of India has made it mandatory to obtain LEI where the aggregate exposure exceeds
  INR 250mn by non-individual borrowers
• All registrations, subsequent to issuance of this circular, shall be processed only on receipt of LEI details
• All existing FPIs (including those applying for renewal) need to provide their LEIs to their Designated Depository Participants (DDPs) within 180 days from the date of issuance of this circular. Non-compliance of the same would lead to the blocking of their accounts for further purchases until LEI is provided to their DDPs
• FPIs are required to ensure that their LEI is always active. In case the LEI code is found inactive or has expired, FPI accounts shall be blocked for further purchases in the securities market till the time the LEI code is renewed by such FPIs
• The circular shall be made appliable from 27 July 2023.

BDO in India Comments

The LEI is a universal identifier. With growing exposure, SEBI is adopting measures to identify legally beneficial entities through a global database. The LEI mechanism is currently being adopted as the single most important identifier in the global financial ecosystem. It is relevant to note that LEI has far-reaching benefits, not only in increasing transparency within capital markets but also in banking, KYC, client onboarding and anti-money laundering.