LEI Compliance for Foreign Portfolio Investment in India

SEBI, the securities and commodity market regulator in India, has introduced a new mandate requiring non-individual foreign portfolio investors (FPIs) to submit their Legal Entity Identifier (LEI) details, aiming to enhance transparency and traceability. The LEI is a unique 20-character code that identifies financial entities globally. Previously voluntary, LEI submission is now mandatory during FPI registration and KYC procedures. Existing FPIs must update their LEI with designated depository participants within 180 days. Failure to comply will result in account blocking. In addition, SEBI has tightened disclosure requirements for FPIs with significant exposures to specific corporate groups and domestic equities.

The Securities and Exchange Board of India (SEBI) has issued a new mandate dated July 27, 2023, requiring all non-individual foreign portfolio investors (FPIs) to submit their Legal Entity Identifier (LEI) details. This move is aimed at improving the transparency and traceability of FPI investments in India. LEI will help SEBI better monitor FPI activity and track their exposure to individual corporations and sectors.

The LEI is a unique 20-character code used worldwide to distinguish financial entities. While previously voluntary, the submission of LEI details is now mandatory during registration and know-your-customer (KYC) formalities for all existing and new FPIs.

In response to the latest regulations, existing FPIs are required to update their Legal Entity Identifier with designated depository participants (DDPs) within a six-month (180-day) timeframe. Failure to comply with this requirement will lead to the blocking of their accounts. Designated depository participants refer to custodians of securities who have registered with SEBI. Prominent banks, such as Axis Bank, HDFC Bank, and JP Morgan Chase Bank, etc. are DDPs in India.

Moreover, new FPI registrations will now mandate the submission of LEI during the registration process. In the event of an FPI’s LEI expiring, their accounts will be blocked until the LEI is renewed.

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Furthermore, DDPs have been instructed to identify the parent institution as the legal entity for FPIs, rather than individual sub-funds. This entails completing KYC at the legal entity level and updating beneficial owner data by September 30.

Earlier in June 2023, SEBI tightened the disclosure requirements for FPIs with over 50 percent exposure to a single corporate group and those with aggregate equity holdings of more than INR 250 billion in domestic equities. These measures include mandating more detailed disclosures regarding ownership, economic interest, and control of objectively identified FPIs that meet specific criteria and conditions. Furthermore, these funds will have to waive the privacy rights granted to them by certain jurisdictions to comply with the new disclosure requirements. However, certain categories of investors are exempt from this requirement. These exempted investors include government-owned funds and related investors, sovereign wealth funds, pension funds, public retail funds, certain listed exchange-traded funds, corporate entities, and verified pooled investment vehicles.

FAQs on Legal Entity Identifier

What is a Legal Entity Identifier (LEI)?

The LEI is a 20-character alphanumeric code created using the ISO 17442:2012 standard and has the following structure:

• Characters 1-4: Prefix used to ensure the uniqueness among codes from LEI issuers (Local Operating Units (LOUs)).
• Characters 5-18: Entity-specific part of the code generated and assigned by LOUs according to transparent, sound, and robust allocation policies. As required by ISO 17442, it contains no embedded intelligence.
• Characters 19-20: Two check digits as described in the ISO 17442 standard.
• Every eligible legal entity will be assigned a unique LEI for use globally. The LEI itself will contain no embedded intelligence.

It serves as a standardized identification key for entities engaged in financial transactions globally. It was introduced to improve transparency and efficiency in the global financial system.

The LEI system is managed by the Global Legal Entity Identifier Foundation (GLEIF), which oversees the issuance and registration of LEIs worldwide. It is important to note that the LEI does not convey any financial or credit-related information about an entity; rather, it solely serves as a unique identifier to improve the accuracy and reliability of financial data reporting.

What is the purpose of LEI?

The primary purpose of the LEI is to provide a consistent and easily recognizable identifier for legal entities involved in financial transactions. It helps to enhance the accuracy and quality of financial data, making it easier for regulatory authorities, financial institutions, and other market participants to track and analyze transactions, exposures, and risks across different jurisdictions.

By using LEIs, financial institutions and regulators can identify and link various financial transactions, holdings, and counterparties more efficiently. This, in turn, facilitates better risk management, reduces data errors, and enhances the overall stability and transparency of financial markets.

Which transactions require LEI information?

LEI information should be provided for all single payment transactions of INR 500 million and above conducted by non-individual entities. This requirement applies to transactions carried out using the NEFT and RTGS payment systems. Both the remitter and beneficiary in these transactions need to include their respective LEI details.

Do individual customer transactions require LEI?

No, LEI is not mandatory for customer transactions where both the remitter and beneficiary are individuals. However, for transactions involving one or both parties as non-individual entities, an LEI will be required.

Who needs to apply for LEI codes in India?

Entities registered in India are required to apply for LEI codes as per the list of eligible entities, which includes but is not limited to:

1. Sole proprietorships
2. Limited liability partnerships (LLPs)
3. Partnership firms
4. Trusts
5. Private limited companies
6. Public limited companies
7. Government companies
8. One person companies
9. Insurance companies
10. Housing finance companies
11. Non-banking finance companies
12. Non-profit companies
13. Special purpose vehicles (SPVs): ARC trusts, companies, partnership firms, co-operative societies, or multistate co-operative societies
14. Mutual funds and sub schemes
15. Pension funds
16. Pension fund sub-schemes
17. Alternative Investment Funds (AIF)
18. AIF-sub schemes
19. Nationalized banks
20. Scheduled urban cooperative banks
21. Regional rural banks (RRBs)
22. Payment banks
23. Banking companies – others
24. Stand-alone primary dealers
25. Public financial institutions
26. Unlimited companies
27. Cooperative societies or multistate cooperative societies
28. Government organizations
29. Companies limited by guarantee
30. Provident/superannuation/gratuity/insurance funds
31. Hindu undivided families (HUF)

These entities are required to obtain LEI codes to comply with the regulatory requirements.

What is the LEI registration process in India?

Entities seeking an LEI can obtain it from accredited LOUs authorized by GLEIF.

In India, the LEI can be obtained from Legal Entity Identifier India Ltd. (LEIL), which is also recognized as an LEI issuer by the Reserve Bank of India (RBI) under the Payment and Settlement Systems Act, 2007.

What documents are required to be submitted by the legal entity for processing LEI applications with the LOU?

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After creating an account, the legal entity can access the “Information” tab and select “Legal Doc Download” to find the list of required documents for each legal form. The entity must upload soft copies of the documents. In case they are unable to upload the documents, they can email them to lei@ccilindia.co.in.

To process LEI applications, the legal entity needs to submit the following documents to the LOU:

1. Letter of Authority: The legal entity must provide a Letter of Authority in the format specified by LEIL. Alternatively, a General Board resolution can be submitted.
2. Audited financial statements: The legal entity should include its audited financial statements.
3. Audited financials of holding and ultimate parent or Auditor’s Certificate: In the case of a holding company and ultimate parent, the legal entity must submit audited financials of both the holding and ultimate parent or provide an Auditor’s Certificate as per the format specified by LEIL.

How long is the LEI Number valid for?

The LEI number is valid for one year from the date of registration. The renewal of this is necessary to ensure the actuality and accuracy of the information. This validation is done only if the entity requests the renewal certification.

However, entities can opt for a multi-year contract option too. Under the multi-year option, if the validity of LEI extends beyond the end-date of the contract (for which the multi-year fee payment is made) due to non-submission of required documents for renewal on time, an additional fee of INR 250 per month will be levied for the period of extension. This additional fee will be applicable until the required documents are submitted and the LEI renewal is completed.

What is the applicable fee for obtaining and renewing LEI?

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