CitiCorp Singapore Settles FPI Violation for ₹36 Lakh

CitiCorp Investment Bank (Singapore) Ltd has agreed to pay ₹36 lakh to settle allegations of non-compliance with SEBI’s Foreign Portfolio Investors Regulations (FPI Regulations). The accusations stem from the issuance of Offshore Derivative Instruments (ODIs) to Symmetry Master Fund Ltd (SMFL) without fulfilling the necessary Know Your Client (KYC) requirements.

The Securities and Exchange Board of India (SEBI) issued a settlement order on March 6, detailing the violations committed by the entity.

Key Findings of the SEBI Order:

1. Issuance of ODI Without KYC Compliance: CitiCorp Investment Bank (Singapore) Ltd issued an ODI to SMFL on December 19, 2023, without first completing the mandatory KYC procedures, which are required under Regulation 21(1)(c) of the FPI Regulations.

By failing to conduct the necessary checks before issuing the ODI, the bank violated Regulation 21(1)(c) of the FPI Regulations, along with Paragraph 2 of Part D of the Master Circular.

2. Delayed Completion of KYC Verification: In its settlement application, the bank acknowledged that it had completed the onboarding and KYC verification process for the ODI subscriber, SMFL, only on January 10, 2024—several weeks after the instrument had already been issued. This delay suggested lapses in compliance procedures related to ODI issuance.

3. Regulatory Fee Payment Delay: SEBI also found that the bank had failed to deposit the regulatory fee collected from the ODI subscriber in a timely manner. The regulatory fee of $800, which corresponded to the ODI issued to SMFL on December 19, 2023, should have been remitted to SEBI immediately.

However, the bank only made the payment on February 26, 2024, causing a delay of 69 days. As a result, CitiCorp Investment Bank (Singapore) Ltd violated Regulation 21(4) of the FPI Regulations, as well as Clause 1 of Part C of the II Schedule of the FPI Regulations.

4. Failure to Implement Proper Systems and Controls: Since the ODI was issued before completing KYC checks, SEBI alleged that the bank had inadequate systems, controls, and procedures in place for handling ODI issuances and ensuring KYC compliance. This was considered a violation of Paragraph 3(iii) of Part D of the Master Circular.

Settlement and Implications

To resolve these allegations, CitiCorp Investment Bank (Singapore) Ltd opted for a settlement with SEBI by paying ₹36 lakh. SEBI’s settlement mechanism allows entities to resolve regulatory breaches without admitting guilt, provided they pay the required settlement amount and implement necessary corrective measures.

This case highlights SEBI’s stringent enforcement of foreign portfolio investor regulations and its commitment to ensuring financial institutions adhere to prescribed norms. The regulations surrounding ODI issuances aim to prevent money laundering, ensure transparency, and maintain the integrity of the Indian securities market.

Financial institutions dealing with offshore investments are expected to implement rigorous compliance measures, particularly in areas such as KYC norms and regulatory fee payments. Non-compliance can result in severe penalties, reputational damage, and increased scrutiny from regulators.

CitiCorp Investment Bank (Singapore) Ltd’s case serves as a reminder for other market participants to enhance their internal controls, ensure timely compliance with regulations, and avoid regulatory lapses that could attract penalties from SEBI or other financial regulatory bodies.

As regulatory frameworks continue to evolve, SEBI is likely to strengthen its oversight on foreign portfolio investments to safeguard investor interests and maintain market stability. Financial institutions must proactively review their policies, streamline compliance processes, and ensure that lapses do not occur in areas such as KYC checks, regulatory fee payments, and adherence to master circular guidelines.

By opting for a settlement, CitiCorp Investment Bank (Singapore) Ltd has taken steps to close the matter, but the incident underscores the need for improved compliance mechanisms across the industry.