Depository participants have made a representation to stock market
regulator SEBI to reconsider some of the responsibilities entrusted to
depositories and depository participants (DP), said sources.

Analysts said that the existing regulation on depositories and DPs
mandates them to deal only with securities pay-in and pay-out.

However, with the introduction of the new Qualified Foreign Investor
(QFI) guidelines, the roles and responsibilities of the depository and
DP have been extended beyond the original brief.

DPs are expected to do the know your customer (KYC) due diligence of a
QFI; receive and remit foreign exchange; place buy and sell orders of
securities on their behalf; ensure pay-in/pay-out of funds/securities on
the designated day and also address all taxation related procedures.

In addition, they are also expected to ensure that the QFI uses only one
demat account and one forex bank account; the shares held are free from
all encumbrances and that the QFI does not issue P Notes to others and
the like.

For monitoring and administering all this, DPs and depositories cannot charge anything.

Marketmen expect some amendments in regulations related to depositories and depository participants (DP) soon.

“It is a new evolution and a legal framework is required to resolve this
teething problem,” said Mr. Pavan Kumar Vijay, MD, Corporate
Professionals

In the absence of a legal framework, a DP and a depository cannot be
pulled up for not having discharged their responsibilities said experts.

“In essence, what SEBI has time and again found difficult to do with
respect to FIIs, the same is expected out of qualified depository
participants (QDP). Ideally, the new category of QDPs should have been
introduced by way of amendments to SEBI DP Regulations, which has not
been done and some of the contemplated activities may go beyond the
mandate of depository participants under DP Regulations and bye laws of
the depositories,” said Mr. Tejesh Chitlangi of Finsec Law Advisors.

According to the Financial Action Task Force (FATF), the number of
countries whose residents qualify to be a QFI is 36 (34 countries + two
regional organisations) as the countries have to be fully compliant with
the FATF standards on money laundering and terrorist financing.

In addition, only 80 countries have signed the multilateral memorandum
of understanding of the International Organisation of Securities
Commissions (IOSCO) regarding consultation, cooperation and exchange of
information among market regulators.

Only six entities, Kotak Bank, HSBC, Deutsche Bank, Citibank NA, SBI SG
Global securities services and India Infoline Limited qualify as a DP
according to a list put up by SEBI. India Infoline is the only one to
qualify as a DP in both NSDL and CDSL while the other five are qualified
DPs of NSDL.