Skip to main content

Sebi planning to tighten depository receipt regulations

The Securities and Exchange Board of India (Sebi) is planning to clamp down on depository receipts (DRs) as part of efforts to check the flow of black money into the stock market.
Sources said Sebi planned to make it mandatory for foreign depositories to reveal details of endbeneficiaries holding DRs issued by Indian companies.
The new framework will align knowyourcustomer (KYC) requirements for DRs with provisions to prevent money laundering.
Many Indian companies issue DRs to raise capital abroad.
DRs have shares as an underlying asset and are typically issued byabank, known as the depository bank, on behalf of a company.
Sebi has proposed DRs can be exercised by the issuer only if information on beneficial ownership is available.
Further, all acquisitions made through DRs resulting inachange in control inalisted company are expected to be governed by Sebi´s takeover rules.
For unlisted companies, DRs are permitted only in sectors eligible for investment by registered foreign venture capital firms as prescribed by the Reserve Bank of India (RBI).
The proposed changes have been submitted to the finance ministry and were discussed with its officials duringarecent meeting.
Sources said the Sebi working group on DRs had conveyed its reservations about the instrument, that the identity of the overseas holder could not be known in the existing framework.
Sebi has also deliberated with representatives of the RBI, custodians, depository banks and revenue department officials.
The new rules are expected to increase compliance for depository banks as they will be asked to provide monthly details of subscribers in case of redemptions and transfers.
The information will have to be shared with the domestic depository.
Further, all financial agreements among the foreign depository, domestic depository and issuers will be tripartite agreements.
“Any new requirements introduced by the regulators to enhance transparency may be able to prevent abuse of law. However, there must beabalance to ensure that genuine foreign investors do not feel excessively burdened with the compliance requirements,” said Sai Venkateshwaran, partner and head, accounting advisory services, KPMG.
Some experts said the new rules could hurt ease of doing business.
“An Indian company should be allowed to decide the best avenue to list its equity. Further, it will be difficult for foreign depositories to maintain lists of beneficial owners,” said Sudhir Bassi, partner, Khaitan & Co.
Following the recommendations of the MS Sahoo Committee, the government had in 2014 notified the liberalised DR scheme.
The proposed norms require domestic custodians to maintain records of issuers in coordination with foreign depositories and report these to an Indian depository for the purpose of monitoring limits under the Foreign Exchange Management Act.
The Business Standard, New Delhi, 20th July 2017


Popular posts from this blog

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

New money laundering norms stump jewellery sector

New money laundering norms stump jewellery sector Dealers with turnover of Rs 2 crore and above covered; industry says threshold too low The central government has notified the money laundering rules for the gems and jewellery sector with immediate effect. Now, any entity deals in precious metals, precious stones, or other high-value goods and has a turnover of Rs 2 crore or more in a financial year will be covered under the Prevention of Money Laundering Act, 2002 (PMLA, 2002). The limit of Rs 2 crore would be calculated on the basis of the previous year’s turnover, said the notification. The directorate general of goods and service tax intelligence has been appointed under the Act. Sources said the government’s move to apply the PMLA to the jewellery sector was a fallout of income-tax raids on jewellers soon after demonetisation last November, when it was found that they sold gold and jewellery at a huge premium and accepted old currency notes as payment. The notification, issued on Augus…

Confusion over branded food GST

Confusion over branded food GST The GST Council's statement over the weekend on applying tax on branded food items has left most of the trade confused.

Even though the Council has not changed the rates on food -0 per cent on unbranded stuff and 5 per cent on brands -many small traders who didn't levy GST earlier said they could come under the 5 per cent slab after the clarification.

While they predicted some increase in consumer prices, large players said they can absorb GST in many ways and keep prices steady.

"Trade is confused and hence on behalf of our chamber, we have asked our members to go ahead and charge 5 per cent GST," said Sushil Sureka, general secretary of the Ahilya Chamber of Commerce and Industry in Indore.

The statement clarifying the application of GST came after some businesses were found deregistering their brands and selling under corporate brand name without paying tax, after the Council exempted unbranded food from the new all-encompassing indirec…