The Securities and Exchange Board of India (SEBI) has put forth a new proposal that would significantly ease the process for Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and foreign nationals to invest in India's securities market. Under the proposed changes, eligible individuals residing in Financial Action Task Force (FATF)-compliant countries would be able to complete their Know Your Customer (KYC) requirements digitally, without needing to be physically present in India.
Currently, the digital onboarding process for securities market investments mandates the client's physical presence in India, a requirement that has proven to be a hurdle for overseas investors. SEBI's consultation paper acknowledges this difficulty and seeks to streamline the onboarding experience for individual Persons Resident Outside India (PROIs).
What the New Proposal Entails
The core of SEBI's proposal is to permit intermediaries to accept digital submissions of KYC records and related documents from PROIs located in FATF-compliant jurisdictions. This means an NRI or OCI living abroad would no longer have to travel to India solely for the digital KYC process, thereby simplifying access to the Indian capital markets.
SEBI emphasizes that this relaxation is designed to enhance market participation and make investing in their home country easier for the Indian diaspora. It is expected to facilitate the channelization of overseas savings into Indian capital markets, contributing to the nation's economic growth.
Key Safeguards and Portability
While easing access, the proposal also outlines additional safeguards for intermediaries to ensure security and prevent fraud. These include:
- A mandatory liveness check during the digital onboarding process.
- KYC verification to be conducted in the presence of authorized representatives.
- Live capture of the client's latitude and longitude, which must match the country specified in their proof of address.
- Requirements for intermediaries to prevent connections originating from spoofed IP addresses.
Furthermore, the proposal seeks to introduce portability for KYC records of individual PROIs. KYC Registration Agencies (KRAs) would be able to mark individual attributes as “validated” if they have been verified against an official or source database. PROI clients could also provide a self-declaration of their current address, provided their officially valid document can be verified through an official database.
SEBI also suggests allowing intermediaries to rely on KYC already completed by another SEBI-registered intermediary or an entity regulated by another financial-sector body, based on records obtained via the KYC system.
Why the Change Now?
This move by SEBI comes in response to representations from various stakeholders who have advocated for relaxing requirements related to physical presence, original document verification, signatures, and KYC portability. The regulator recognizes PROIs as a significant and growing source of investment into India.
The proposal also aligns with recent amendments by the Finance Ministry to the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, which now permit foreign nationals to invest in Indian securities without necessarily using the foreign portfolio investment route. These combined efforts aim to create a more accessible and efficient investment environment for eligible overseas investors while maintaining robust identity and fraud prevention measures.