AML Laws and Regulations for Foreign Portfolio Investors in India

Last Updated on: 27th August 2026 | Last Reviewed on: 27th August 2026

Key Takeaways at a Glance

Who is covered: foreign portfolio investors registered under the SEBI (Foreign Portfolio Investors) Regulations, 2019, and the designated depository participants and custodians that register, onboard and hold assets for them, as the reporting entity chain under the PMLA.
Why they are caught: the designated depository participant and custodian are intermediaries registered under section 12 of the SEBI Act and so are reporting entities under section 2(1)(n) and (wa) of the PMLA, and they carry the FPI due diligence.
Governing laws: the PMLA, 2002 and the PML (Maintenance of Records) Rules, 2005; the SEBI FPI and DDP master circular, the SEBI AML/CFT Guidelines, 2024 and the SEBI KYC Master Circular; the SEBI (FPI) Regulations, 2019; the UAPA 1967 (Section 51A) and the WMD Act, 2005 (Section 12A).
Supervisor: the Securities and Exchange Board of India (SEBI). Reports go to the Financial Intelligence Unit – India (FIU-IND); the Enforcement Directorate (ED) enforces the PMLA.
Core duties: registration due diligence, FPI risk categorisation, beneficial owner identification, ongoing monitoring, prescribed transaction reporting, five year record-keeping and sanctions screening.

This guide is general information on Indian law, not legal advice. For your firm’s specific position, speak to a qualified AML professional.

Foreign portfolio investors, and the designated depository participants and custodians that onboard them, sit squarely within India’s anti money laundering framework under the Prevention of Money-Laundering Act, 2002. A foreign portfolio investor is an overseas investor registered with the Securities and Exchange Board of India, through a designated depository participant, to invest in Indian securities. The AML, CFT and CPF duties around FPIs flow from the PMLA, the PML (Maintenance of Records) Rules, 2005, the SEBI master circular for FPIs and designated depository participants, the SEBI AML/CFT Guidelines for securities market intermediaries, the SEBI KYC Master Circular, Section 51A of the UAPA, Section 12A of the WMD Act, and the FIU-IND reporting framework. SEBI supervises the FPI regime, and reports are filed with FIU-IND. This guide sits within the wider set of guides for securities market intermediaries.

The core instruments at a glance

Instrument	What it does in the FPI regime
PMLA, 2002	The parent Act. Makes the designated depository participant and custodian reporting entities and creates the duties of due diligence, record-keeping and reporting for FPI onboarding.
PML (Maintenance of Records) Rules, 2005	Provide the detailed requirements for customer due diligence, beneficial ownership identification, transaction reporting, record keeping and the appointment of the Designated Director and Principal Officer.
SEBI FPI and DDP Master Circular	Provides the requirements relating to registration, due diligence, beneficial ownership and ongoing compliance.
SEBI AML/CFT Guidelines (6 June 2024)	Provide the AML and CFT requirements applicable to securities market intermediaries, including relevant intermediaries involved in the FPI framework.
UAPA Section 51A and WMD Act Section 12A	Establish targeted financial sanctions requirements relating to designated persons and entities connected with terrorism and proliferation financing.
FATF Recommendations	The international preventive measure standards that India’s framework is built to meet.

What Counts as A Foreign Portfolio Investor in India?

A Foreign Portfolio Investor is a person registered with SEBI under the SEBI Foreign Portfolio Investors Regulations, 2019 to make investments in Indian securities in accordance with the applicable regulatory framework. The FPI framework covers different categories of eligible foreign investors and applies prescribed eligibility, registration, ownership, beneficial ownership and investment requirements.

An FPI operates through the intermediaries specified under the regulatory framework. A designated depository participant performs functions relating to FPI registration and due diligence, while a custodian performs custody and related functions as applicable. The roles of a DDP and custodian should therefore not be treated as identical in every case.

The money laundering risk associated with the FPI framework is primarily a cross border ownership, source of funds and investment risk. It can arise from complex ownership structures involving multiple jurisdictions, difficulty in identifying the ultimate beneficial owners, connections with high risk jurisdictions, the movement of illicit or undisclosed funds through portfolio investments and opaque investment structures. The framework therefore places significant emphasis on customer due diligence, beneficial ownership identification, risk assessment, ongoing monitoring and sanctions screening.

How are Foreign Portfolio Investors Covered under the PMLA?

The Prevention of Money-Laundering Act, 2002 stablishes the offence of money laundering and imposes obligations on reporting entities. Within the FPI framework, relevant DDPs and custodians that satisfy the statutory definition of intermediary under section 2(1)(n) are reporting entities under section 2(1)(wa) of the PMLA.

This places the FPI onboarding chain within the same body of reporting entities that file with FIU-IND as banks and other intermediaries, and within the wider AML laws and regulations for intermediaries in India. The obligations are calibrated to the FPI category and risk, but the reporting entity duties on the DDP and custodian are not optional.

Supervisory Authority for the FPI Regime in India

The supervisor for the FPI regime is the Securities and Exchange Board of India, which registers FPIs through designated depository participants under the SEBI (Foreign Portfolio Investors) Regulations, 2019, sets the AML rules and inspects compliance.

The consolidated rulebook is the SEBI Master Circular and the central AML instrument is the SEBI Guidelines on AML Standards and CFT Obligations of Securities Market Intermediaries, updated on 6 June 2024, read with the SEBI Master Circular on KYC Norms for the Securities Market. Together, these carry the registration due diligence, beneficial owner and monitoring duties into the FPI regime.

The Financial Intelligence Unit – India receives, analyses and disseminates the reports the DDPs and custodians file, and the Enforcement Directorate investigates and prosecutes the offence of money laundering under the PMLA. In short, SEBI sets and inspects the rules, FIU-IND receives the intelligence, and the ED enforces the criminal law.

AML Regulatory Requirements for Foreign Portfolio Investors in India

The law that governs a DDP or designated depository participant does not sit in one place. It is a layered framework, and it helps to see it grouped as the official source set groups it: the core legislation, the overarching obligations, the sectoral regulator and its instruments, the miscellaneous official reports, the international standards, and the allied laws.

The framework reads from the core outward. The PMLA is the parent Act; the PML Rules turn it into operational duties; the SEBI FPI and DDP master circular and the SEBI AML/CFT Guidelines translate both into instructions a DDP or designated depository participant can follow; the UAPA and the WMD Act add counter terrorism and proliferation financing sanctions; and the allied laws, including the securities statutes, shape the risk. The risk based approach ties it all together and is a crucial part of the AML, CFT and CPF framework.

Core Legislation

The primary statutes and rules that create the AML, CFT and CPF obligations are grouped into three categories.

AML Legislation

Prevention of Money-Laundering Act, 2002 (PMLA)

The parent anti money laundering law. It creates the offence of money laundering and the core duties on reporting entities, including client due diligence under Section 11A and record-keeping under Section 12. A DDP or designated depository participant is a reporting entity by virtue of the intermediary definition in section 2(1)(n), so the Act applies to an FPI onboarding chain in the same shape as to a bank, scaled to the business.

The PML (Maintenance of Records) Rules, 2005 (PMLR)

The rules made under the PMLA. They set what to report and when (Rule 3 and Rule 8), how to identify clients and beneficial owners (Rule 9), and the duty to appoint officers (Rule 7). For a DDP or designated depository participant, the relevant Regulator named in Rule 2(1)(fa) is SEBI. The PMLR has been amended through 31 Gazette notifications and orders, set out below as a legal history timeline.

The 31 PMLR amendment notifications, in date order:

Gazette notification and date	Key change or rule touched
G.S.R. 389(E), 24 May 2007	Broadened the scope of suspicious transactions under the PML Rules, 2005 to include transactions with no apparent economic rationale or links to terrorist financing. The amendment also expanded reportable cash transactions to cover forged currency and documents, prescribed reporting timelines to the Director and reduced the number of certified copies required for specified submissions from three to one.
G.S.R. 816(E), 12 November 2009	Introduced the definitions of non profit organisation and Regulator and expanded the scope of suspicious transactions to include transactions involving unusual complexity, absence of apparent economic rationale or links to terrorist financing. The amendment also required reporting of cash receipts exceeding ten lakh rupees by NGOs, replaced references to individual regulators including RBI, SEBI and IRDA with the term Regulator and extended the record retention period to ten years from the date of the transaction.
G.S.R. 76(E), 12 February 2010	Strengthened the provisions governing record keeping and reporting under Rules 3, 4, 5 and 7 of the PML Rules, 2005. An Explanation was also inserted into Rule 9(1A) to clarify that the beneficial owner is the natural person who ultimately owns or controls the client or on whose behalf a transaction is conducted.
G.S.R. 508(E), 16 June 2010	Modified Rules 2, 9 and 10 of the PML Rules, 2005 to enhance requirements concerning definitions, customer due diligence and record keeping. The changes further strengthened customer identification procedures and reinforced the obligation of reporting entities to maintain and preserve relevant records.
G.S.R. 980(E), 16 December 2010	Established the framework for small accounts by introducing the definitions of Designated Officer and small account. The amendment also expanded the list of officially valid documents to include the NREGA job card and Aadhaar letter and inserted Rule 9(2A) prescribing conditions for opening, operating and monitoring small accounts.
G.S.R. 481(E), 24 June 2011	Renamed the Rules through an amendment to Rule 1 by adopting the title Prevention of Money Laundering Maintenance of Records Rules, 2005. This established the shortened title subsequently used when referring to the Rules.
G.S.R. 576(E), 27 August 2013	Added the definition of Designated Director under Rule 2 and amended Rules 3, 7, 8, 9 and 10. The changes strengthened transaction reporting, compliance oversight, customer due diligence and record maintenance requirements for reporting entities.
G.S.R. 288(E), 15 April 2015	Identified the documents recognised as officially valid documents for customer identification purposes under the PML Rules, 2005.
G.S.R. 544(E), 7 July 2015	Established the definition of Central KYC Records Registry and modified Rules 9 and 10 of the PML Rules, 2005 to strengthen the KYC framework. The amendment also supported the centralised collection, maintenance and management of KYC records by reporting entities.
G.S.R. 730(E), 22 September 2015	Updated various definitions under Rule 2 and introduced corresponding amendments to the PML Rules, 2005 to reflect developments in KYC requirements. The changes provided greater clarity on key regulatory terms and enhanced customer identification and due diligence provisions.
G.S.R. 882(E), 18 November 2015	Added provisions relating to the definition of Regulator and introduced Rule 9B to strengthen the customer due diligence framework under the PML Rules, 2005. The amendment also enhanced requirements relating to customer identification and verification.
G.S.R. 347(E), 12 April 2017	Amended Rule 2 and inserted Rule 9B, drawing the Central KYC Records Registry into the Rules, creating the duty for reporting entities to file customer KYC records centrally and the basis to reuse them, the structural addition behind today’s CKYCR.
G.S.R. 538(E), 1 June 2017	Enhanced Rules 2 and 9 of the PML Rules, 2005 through additional provisions aimed at strengthening the operational AML framework. The changes further developed customer identification, due diligence and compliance procedures applicable to reporting entities.
G.S.R. 1038(E), 21 August 2017	Refined the definitions under Rule 2 of the PML Rules, 2005 by adding provisions to clarify key terms used within the regulatory framework. The amendments promoted greater consistency in the interpretation and implementation of AML and KYC requirements.
G.S.R. 1318(E), 23 October 2017	Clarified Rule 2 by adding a proviso concerning the acceptance and treatment of officially valid documents. The amendment provided greater clarity on how such documents could be used for customer identification and verification purposes under the PML Rules, 2005.
G.S.R. 456(E), 16 May 2018	Reinforced Rule 9 by requiring reporting entities to establish and maintain a formal customer due diligence programme. The amendment emphasised the need for appropriate processes to identify and verify customers as part of the AML framework.
G.S.R. 1078(E), 31 October 2018	Extended the period prescribed under Rule 9(1A) from three days to ten days. The amendment provided reporting entities with additional time to complete the specified customer due diligence requirements.
G.S.R. 108(E), 13 February 2019	Enhanced Rule 9 through amendments to the customer due diligence framework. The changes introduced additional requirements concerning customer identification and verification and further strengthened the AML framework.
G.S.R. 381(E), 28 May 2019	Created specific customer due diligence provisions for prisoners opening or maintaining bank accounts. The amendment allowed the officer in charge of the jail to certify the customers signature or thumb impression and permitted such accounts to continue operating subject to annual submission of a proof of address certificate issued by the same authority.
G.S.R. 582(E), 19 August 2019	Introduced digital KYC, equivalent electronic documents and offline Aadhaar verification under the PML Rules, 2005. The amendment revised Rule 9 to recognise different methods of customer identification and established a digital KYC process involving live photographs, geotagging, OTP based authentication and prescribed verification procedures.
G.S.R. 669(E), 18 September 2019	Added the definition of depository receipt and simplified customer due diligence requirements for specified foreign investments. The amendment allowed reporting entities to rely on beneficial ownership requirements prescribed by notified foreign jurisdictions for specified investments. It also introduced certain exemptions for listed companies and their subsidiaries from identifying and verifying individual shareholders or beneficial owners in specified circumstances.
G.S.R. 840(E), 13 November 2019	Allowed customers undergoing Aadhaar based identity verification to declare a current address different from the address recorded in the Central Identities Data Repository. The amendment enabled reporting entities to accept a self declaration of the customers current address for customer due diligence purposes.
G.S.R. 228(E), 31 March 2020	Allowed temporary continuation of small accounts that were scheduled for closure due to pending customer due diligence requirements. The amendment permitted these accounts to remain operational from 1 April 2020 to 30 June 2020 and enabled the Central Government to extend the period further in response to the COVID 19 pandemic.
G.S.R. 251(E), 13 April 2020	Provided a temporary extension for reporting entities to submit prescribed transaction reports under Rule 8. The amendment allowed eligible reports to be submitted by 30 June 2020 in recognition of the operational challenges caused by the COVID 19 pandemic.
G.S.R. 254(E), 16 April 2020	Specified the transaction reports eligible for the temporary extension under Rule 8. The amendment covered reports under Rule 3(1)(A), (B), (BA), (C) and (E) for March, April and May 2020 and reports under Rule 3(1)(F) for the January to March 2020 quarter, with submission allowed until 30 June 2020.
G.S.R. 798(E), 28 December 2020	Brought real estate agents with an annual turnover of Rupees 20 lakh or more within the category of persons carrying on a designated business or profession under the PMLA. This brought qualifying real estate agents within the reporting entity framework and subjected them to applicable AML and customer due diligence requirements.
G.S.R. 575(E), 13 July 2022	Introduced specific AML and KYC provisions for reporting entities operating within an International Financial Services Centre. The amendment designated the head of the reporting entity in India as the designated officer for IFSC entities, expanded the range of officially valid documents available to foreign nationals, added the definition of International Financial Services Centre to the Rules and provided exemptions from specified Central KYC Records Registry requirements for foreign national customers of IFSC reporting entities.
S.O. 1074(E), 7 March 2023	Reduced the beneficial ownership threshold to 10 percent and introduced requirements concerning group wide AML policies. The amendment also added definitions for group, politically exposed person and non profit organisation, enhanced customer due diligence requirements for legal persons and trusts and introduced registration requirements for eligible non profit organisations.
G.S.R. 652(E), 4 September 2023	Reinforced the AML framework by enhancing provisions relating to beneficial ownership, group wide AML policies and customer due diligence. The amendment also refined provisions concerning groups, politically exposed persons and non profit organisations, strengthened due diligence requirements for legal persons and trusts and introduced additional registration obligations for eligible non profit organisations.
G.S.R. 745(E), 17 October 2023	Enhanced customer due diligence requirements by requiring customer identity to be verified through reliable and independent sources. The amendment also strengthened group wide AML programmes, required suspicious transaction reports to be submitted within the prescribed period after suspicion was established and reinforced confidentiality requirements relating to AML records and reporting.
G.S.R. 419(E), 19 July 2024	Strengthened the Central KYC Records Registry framework by requiring reporting entities to use the KYC Identifier when retrieving customer records. The amendment also limited requests for duplicate KYC documents to specified circumstances, introduced a seven day period for updating KYC records and required reporting entities to retrieve and use updated customer information maintained in the Central KYC Records Registry.

The PML (Manner of Receiving the Records Authenticated Outside India) Rules, 2005

Rules for accepting client records authenticated outside India, relevant where a DDP or designated depository participant onboards a non resident client or a foreign portfolio investor and must rely on documents executed abroad.

CFT Legislation

The Unlawful Activities (Prevention) Act, 1967 (UAPA)

The counter terrorism law. Section 51A requires a DDP or designated depository participant to screen clients against the designated lists and to freeze, without delay, the funds and securities of listed persons and entities. The duty binds every DDP and designated depository participant, whatever its size.

Procedure For Implementation of Section 51A Of the UAPA (Order Dated 2 February 2021; Corrigendum Dated 15 March 2023 And 29 August 2023)

The official procedure a DDP or designated depository participant follows to apply Section 51A, including how to act on a designated list match. The SEBI guidelines fold these steps into the DDP or designated depository participant to an issue’s screening and freezing controls.

CPF Legislation

The Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005 (WMD Act)

The proliferation financing law. Section 12A provides the legal basis for targeted financial sanctions relating to the financing of weapons of mass destruction and applies to foreign portfolio investors alongside banks and financial institutions.

Procedure for Implementation of Section 12A of the WMD Act (dated 1 September 2023)

The official procedure for applying Section 12A mirrors the screening and freezing steps that Section 51A sets for terrorism financing.

The WMD and their Delivery Systems (Prohibition of Unlawful Activities) Implementation Rules, 2016

Rules implementing the WMD Act and supporting the proliferation financing controls a DDP or designated depository participant must operate.

Overarching Obligations

The cross cutting systems and procedures that sit above any single regulator and carry a DDP’s KYC data and reports.

CERSAI Central KYC Records Registry (CKYCR) Operating Guidelines, 2025

Govern the central registry that stores client KYC records for reuse across the financial system. A DDP or designated depository participant files client KYC data to the CKYCR, retrieves an existing record on onboarding, and updates it within the prescribed window when details change, cutting duplicate paperwork for investors.

SEBI KYC Registration Agency Regulations, 2011

Govern the KYC Registration Agencies that store and share client KYC records across SEBI-registered intermediaries. An underwriter uploads a new client’s KYC documents to a KRA, checks an incoming client’s KYC status before onboarding, and flags or updates the record when the client’s details change, so the same KYC is not repeated for every intermediary the client deals with.

FINnet 2.0 Reporting Formats (2024) and the FINGate 2.0 User Manuals

Define the electronic formats and the gateway through which a DDP or designated depository participant files its cash, suspicious and other prescribed reports to FIU-IND, in the current FINnet 2.0 and FINGate 2.0 environment.

eKYC and Section 11A Aadhaar Authentication for the Securities Market

SEBI’s circular on the eKYC authentication facility under Section 11A of the PMLA lets foreign portfolio investors use Aadhaar based verification for resident clients within the statutory and Supreme Court limits, giving a lawful digital onboarding route.

Sectoral

The market regulator and the instruments it issues. This is the sector specific layer, and the SEBI FPI and DDP master circular and the SEBI AML/CFT Guidelines are the instruments a DDP or designated depository participant works from most closely.

Securities and Exchange Board of India (SEBI)

SEBI Master Circular for FPIs, Designated Depository Participants and Eligible Foreign Investors

The star instrument in the FPI regime. This Master Circular consolidates the conduct requirements for foreign portfolio investors, from registration and net worth to segregation of assets, settlement and reporting, and it is the document into which the KYC and AML obligations are read for the FPI regime. It is where a DDP or designated depository participant should look first for a rule that applies to how it takes on clients and holds their assets.

SEBI Guidelines on AML Standards and CFT Obligations of Securities Market Intermediaries (6 June 2024)

The working AML rulebook for every SEBI registered intermediary, updated on 6 June 2024. It carries the client due diligence, risk categorisation, beneficial ownership, ongoing monitoring, record-keeping, reporting and sanctions requirements into the securities market, and it replaces the earlier 2010 and 2014 AML master circulars. For a DDP or designated depository participant it is the source of the detailed AML duties that sit alongside the conduct rulebook.

SEBI Master Circular on KYC Norms for the Securities Market (12 October 2023)

The consolidated KYC framework for the securities market, read with the 12 October 2023 modification circular and the clarification on the use of technology for KYC, which set how a DDP or designated depository participant identifies and verifies its clients and maintains their records through the KYC Registration Agencies.

eKYC, KYC Clarification Circulars and SEBI FAQs

SEBI’s circular on the eKYC authentication facility under Section 11A (5 November 2019), the clarification on the use of technology for KYC (24 April 2020) and the frequently asked questions on KYC norms give a DDP or designated depository participant practical guidance on digital onboarding and record-keeping.

Miscellaneous Official Reports and Guidance

Official reports and guidance that are not binding rules but shape how a DDP or designated depository participant reads its risk and the wider enforcement picture.

FIU-IND Annual Report 2024 to 2025

The Financial Intelligence Unit’s yearly account of reporting volumes, typologies and enforcement trends, useful for a DDP or designated depository participant calibrating what unusual client or trading activity looks like across the market.

Directorate of Enforcement Annual Report 2025 to 2026

The ED’s yearly summary of PMLA investigations, attachments and prosecutions, a reminder of how the criminal side of the regime operates.

FIU-IND and its Core Functions and FAQs

FIU-IND’s explanation of its own role and a set of frequently asked questions, a plain language reference on registration and reporting expectations.

MHA National Counter Terrorism Policy and Strategy

The Ministry of Home Affairs statement of national counter terrorism policy, background that frames the UAPA sanctions obligations a DDP or designated depository participant must apply.

International Standards

The global standards India’s framework is built to meet, and against which a DDP’s controls are ultimately judged.

FATF Recommendations

The Financial Action Task Force’s forty Recommendations are the international baseline for AML and CFT. FATF updated Recommendation 6 on targeted financial sanctions in June 2026.

FATF Mutual Evaluation Report on India, 2024 (and Executive Summary)

The peer assessment of India’s AML and CFT regime, which found India largely compliant and set the direction of travel that continues to shape the supervision of foreign portfolio investors and other securities intermediaries.

Allied Laws

The wider body of law that defines the securities statutes and the predicate offences and enforcement machinery around money laundering. A DDP or designated depository participant operates under the securities statutes, while the predicate and enforcement Acts shape the risk it must assess and the conduct it may need to report.

The allied laws that most often bear

The Securities and Exchange Board of India Act, 1992 establishes SEBI as India’s securities market regulator, giving it powers to register and supervise intermediaries, including the DDPs and custodians in the FPI chain. The SEBI Intermediaries Regulations, 2008 Lays down the common registration, eligibility, and code of conduct framework that SEBI registered intermediaries, including custodians and DDPs, must follow.

The Foreign Exchange Management Act, 1999 governs cross border capital flows and foreign exchange transactions, forming the regulatory backbone for how FPI money enters and exits India. The Bharatiya Nyaya Sanhita, 2023 is India’s substantive criminal code, replacing the Indian Penal Code, and the general law defining offences such as fraud and cheating relevant to financial crime.

The Bharatiya Nagarik Suraksha Sanhita, 2023 India’s criminal procedure code, replacing the CrPC, setting out the procedure for investigation, arrest, and trial of offences. The Benami Transactions Prohibition Act, 1988 prohibits holding property in another person’s name to conceal the real owner, a key tool against layering and beneficial ownership concealment.

The Prevention of Corruption Act, 1988 criminalises bribery and corruption by public servants, relevant as a predicate offence feeding into money laundering investigations. The Narcotic Drugs and Psychotropic Substances Act, 1985 criminalises drug trafficking and related activity, with drug proceeds a classic predicate offence under the PMLA.

The Fugitive Economic Offenders Act, 2018 allows confiscation of the assets of economic offenders who flee India to avoid prosecution. The Black Money Undisclosed Foreign Income and Assets and Imposition of Tax Act, 2015 Taxes and penalises undisclosed foreign income and assets held by Indian residents, targeting offshore concealment.

The Foreign Contribution Regulation Act, 2010 regulates the acceptance and utilisation of foreign contributions by individuals, associations, and companies in India. The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 Provides for preventive detention for conservation and augmentation of foreign exchange and prevention of smuggling activities.

The Smugglers and Foreign Exchange Manipulators Forfeiture of Property Act, 1976 Allows forfeiture of illegally acquired property belonging to smugglers and foreign exchange manipulators. The Arms Act, 1959 regulates acquisition, possession, and manufacture of firearms, relevant to arms trafficking linked money laundering.

The Chemical Weapons Convention Act, 2000 implements India’s obligations under the Chemical Weapons Convention, restricting production and trade in scheduled chemicals. The Central Vigilance Commission Act, 2003 establishes the Central Vigilance Commission as India’s apex anti corruption watchdog for central government bodies.

Core AML/CFT/CPF Obligations in the FPI Regime in India

Across that framework, the regulations require the DDP and custodian in the FPI chain to do the following. This article keeps each at the level required by law; a compliance requirements guide explains how to do each.

Register with FIU-IND. Enrol on the FINnet 2.0 / FINGate 2.0 portal so the DDP and custodian can file their reports.
Appoint officers. Appoint a Designated Director and a management level Principal Officer under Rule 7 of the PMLR and the SEBI Guidelines. The same person cannot hold both roles, and both are informed to FIU-IND and, where applicable, SEBI.
Conduct the internal risk assessment. Run an ML and TF risk assessment across clients, products, channels and geographies, document it, and take its outcome to the board, as the SEBI AML/CFT Guidelines require.
Document AML policy, controls and procedures. Adopt a board approved policy that turns the risk assessment into the DDP’s FPI onboarding procedures.
Client identification and CDD. Identify and verify every client and the beneficial owner (a controlling interest of more than 10 per cent for a company or partnership, and more than 15 per cent for an unincorporated association or body of individuals, with the separate trust test), with enhanced due diligence for politically exposed persons and high risk clients, under Section 11A of the PMLA, Rule 9 of the PMLR and the SEBI KYC Master Circular. Given the FPI regime, rigorous registration due diligence on each FPI, identifying the beneficial owners behind layered and multi jurisdictional structures to the prescribed thresholds, and understanding the source of the funds invested, are central.
Ongoing monitoring and periodic updation. Monitor FPI activity and flows on an ongoing basis, and refresh KYC on the FPI category cycle, reviewing each FPI’s risk categorisation and re verifying beneficial ownership when the structure changes.
Sanctions screening. Screen clients and beneficial owners against the designated lists under Section 51A of the UAPA and Section 12A of the WMD Act, and freeze and report any match, verifying the relevant UNSC and domestic lists daily.
Regulatory reporting. File cash transaction reports for cash above Rupees 10 lakh, suspicious transaction reports of any value, non profit organisation receipt reports and counterfeit currency reports under Rule 3 and Rule 8 of the PMLR. Cash and related reports are filed monthly, by the 15th day of the succeeding month; suspicious transaction reports are filed promptly once the Principal Officer is satisfied, through FINnet 2.0.
Record management, CKYCR and FINnet 2.0. Keep transaction records for five years from the date of the transaction, and identity records, account files and correspondence for five years after the relationship ends, under Section 12 of the PMLA. Upload client KYC records to the CKYCR under Rule 9A, and file all prescribed reports through FINnet 2.0.
Training and awareness. Train staff by role to apply the controls and recognise red flags in the FPI regime, such as opaque or multi layered ownership that hides the ultimate beneficial owner, FPIs from or connected to high risk jurisdictions, round tripping through the portfolio route, and opaque offshore derivative instruments.
Independent testing and audit. Test the programme through internal audit, compliance assurance or independent review, and close every finding.
Run group wide controls. Where the DDP or custodian is part of a group, apply AML and CFT programmes at group level, including for branches and majority owned subsidiaries, as the SEBI Guidelines require.

What this article does not cover

This article explains the laws and regulatory instruments that apply to the FPI regime. It does not provide a control by control compliance manual, and it does not restate the SEBI (FPI) Regulations or the registration process rules except where they bear on the AML duties. For implementation, a designated depository participant and custodian separately document FPI registration and beneficial owner due diligence, KYC and CDD procedures, source of funds checks, sanctions screening, ongoing monitoring, suspicious transaction escalation, staff training, audit testing and board reporting. Those controls are the subject of the companion compliance guide.

To see how the FPI framework fits within the sector, see AML laws and regulations for intermediaries in India, and to place it within the national picture, see AML laws and regulations in India.

From regulation to compliance: your next step

Knowing the law is step one. These obligations only protect the FPI regime when they are built into a working programme of risk assessment, policy, registration due diligence, monitoring, screening, reporting, training and independent review. For an FPI onboarding chain, rigorous beneficial owner identification behind layered structures, source of funds scrutiny and ongoing monitoring are the controls that matter most. Understanding the stages of money laundering and how the sanctions screening process works is a useful starting point.

Want to confirm what the SEBI framework means for your firm?

AML India can walk you through the SEBI FPI and DDP master circular and the AML/CFT Guidelines and build a proportionate FPI due diligence and beneficial owner programme for your onboarding chain.

Frequently Asked Questions

What is a foreign portfolio investor?

A person established or incorporated outside India that is registered with SEBI under the SEBI (Foreign Portfolio Investors) Regulations, 2019, through a designated depository participant, to invest in Indian securities. FPIs include foreign institutional investors, funds, banks and eligible foreign individuals, grouped into categories by their nature and due diligence level.

How are FPIs covered by the PMLA?

The AML duties in the FPI regime fall on the designated depository participant and the custodian that register, onboard and hold assets for the FPI. They are intermediaries registered under section 12 of the SEBI Act and so are reporting entities under section 2(1)(n) and (wa) of the PMLA. They carry out the FPI’s due diligence and beneficial owner identification.

Which SEBI instruments apply to the FPI regime?

The SEBI master circular for foreign portfolio investors, designated depository participants and eligible foreign investors is the consolidated rulebook, read with the SEBI AML/CFT Guidelines for Securities Market Intermediaries of 6 June 2024, the SEBI Master Circular on KYC Norms for the Securities Market of 12 October 2023, and the SEBI (FPI) Regulations, 2019.

Why is beneficial ownership so central for FPIs?

Because foreign money is often invested through layered, multi jurisdictional structures, the ultimate beneficial owner behind an FPI can be hard to see, which is the main money laundering risk in the regime. The designated depository participant must identify the beneficial owners behind each FPI to the prescribed thresholds, apply enhanced due diligence to higher risk categories and jurisdictions, and re verify when the structure changes.

What must the DDP or custodian report to FIU-IND?

Suspicious transaction reports of any value, cash transaction reports where cash above Rupees 10 lakh is involved, non profit organisation receipt reports and counterfeit currency reports. Cash and related reports are filed monthly by the 15th of the succeeding month, and suspicious transaction reports promptly once the Principal Officer is satisfied, through FINnet 2.0.

Do the sanctions rules apply in the FPI regime?

Yes. The screening duties under Section 51A of the UAPA and Section 12A of the WMD Act apply to the DDPs and custodians in the FPI chain. They screen each FPI and its beneficial owners against the United Nations and domestic designated lists at registration and on an ongoing basis and act on and report any match without delay.

Official sources and review

Last reviewed: August 2026. This guide is grounded in the following primary official sources, linked to their official source where available.

This guide covers money laundering law and compliance, a sensitive area where the rules change; confirm the current position for your firm with a qualified professional before acting.

Why work with AML India

AML India helps designated depository participants and custodians meet their PMLA and SEBI obligations in the FPI regime, from risk assessment and policy through to FPI due diligence, beneficial owner identification, screening, monitoring, reporting, training and independent review.

Industries we serve: designated depository participants, custodians, foreign portfolio investors, depositories, mutual funds, stock brokers and other securities intermediaries, alongside banks, NBFCs, insurers, DNFBPs and IFSC and GIFT City entities.

About the Author

Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 26 years of experience in governance, risk, and compliance. He helps companies with end-to-end AML compliance services, from conducting Enterprise- Wide Risk Assessments to implementing the robust AML Compliance framework. He has played a pivotal role as a functional expert in developing and implementing RegTech solutions for streamlined compliance.

Reach Out to Pathik