Panel moots Sebi-RBI mechanism to track foreign fund flows

The parliamentary standing committee on finance has proposed a Securities and Exchange Board of India (Sebi) and Reserve Bank of India (RBI) co-ordination mechanism to monitor foreign investments in the stock market.

In its report on the Prevention of Money Laundering (Amendment) Bill, 2011, tabled in Parliament today, the panel said, "The committee has been informed that the participatory notes (P-notes) being issued by FIIs (foreign institutional investors) are being regulated by Sebi, and the P-notes can be issued to regulated entities alone.

However, the committee is surprised to learn other investments in the stock market, including foreign currency flows by both individual and institutional investors are not being monitored by Sebi".

The Bill was introduced in Parliament and subsequently referred to the committee on January 5. The committee, headed by Bharatiya Janata Party leader Yashwant Sinha, stressed it wanted Sebi to set up the co-ordination mechanism.

It pointed out the scrutiny of fund flows into the markets could not be left to individual banks, as tainted money flowing into the markets remained a distinct possibility.

"Suitable amendments may therefore be made in the Bill to monitor and curb possible money laundering through stock/securities markets. All the regulatory and intelligence agencies, including RBI, Sebi, FIU(IND), the Enforcement Directorate, the Directorate of Revenue Intelligence and Investigation Wing of the Income Tax Department, should set up a monitoring/co-ordination mechanism for this purpose, while remaining alert to such financial flows," said the panel.

The committee has also recommended that the definition of 'reporting entities' might be widened to include categories such as travel agents, vehicle sellers and dealers who dealt in large-value cash transactions.