SEBI directs market intermediaries to align KYC systems with new FATCA, CRS rules

Résumé détaillé

Market intermediaries will have to strengthen customer due diligence, revise account classification systems and upgrade their reporting software to meet the updated requirements. SEBI has also made intermediaries solely responsible for obtaining and reporting client certifications and ensuring compliance with the revised framework.

Markets regulator SEBI has directed market intermediaries to rework their KYC and reporting systems to align with revised FATCA and CRS requirements under the new income tax regime.

Foreign Account Tax Compliance Act (FATCA) is a law designed to prevent tax evasion by US taxpayers using foreign accounts and offshore assets, while the Common Reporting Standard (CRS) is a global framework to exchange financial account information between participating countries and combat cross-border tax evasion.

In a circular dated November 11, the regulator said registered intermediaries qualifying as Reporting Financial Institutions (RFIs) must incorporate the revised reporting and due diligence requirements into their customer onboarding and Know Your Customer (KYC) frameworks.

The changes follow the replacement of the Income-Tax Act, 1961, and Income-Tax Rules, 1962, with the Income-Tax Act, 2025, and Income-Tax Rules, 2026, with effect from April 1, 2026.

Under the revised framework, reporting obligations for accounts covered by the FATCA and CRS are governed by Section 508 of the new Act, Rules 238 to 240 and Form 166.

SEBI has asked intermediaries to update their self-certification procedures to capture validity indicators and strengthen systems for identifying controlling persons, including recording their roles as settlor, trustee, protector, beneficiary or others.

They must also modify account classification systems to capture account types and distinguish between pre-existing and new accounts.

The regulator has further directed intermediaries to upgrade their Form 166 XML generation software to incorporate all newly mandatory fields, warning that missing information will lead to validation errors on the Income Tax portal.

Intermediaries have also been asked to upload FATCA and CRS certifications obtained from clients onto the systems of KYC Registration Agencies (KRAs).

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