Tightening its norms to check any misuse of participatory notes (P-Notes) for laundering of black money, the Securities and Exchange Board of India (Sebi) has made it mandatory for users of these controversy-ridden overseas instruments to follow Indian anti-money laundering law and report any suspicious transactions immediately. Acting upon recommendations of the Supreme Court- appointed Special Investigation Team on black money, Sebi also tightened the due-diligence requirements for issuance and transfer of these instruments and put the onus on the original issuer for compliance to Anti-Money Laundering Regulations.

P-Notes are instruments issued by registered foreign institutional investors to overseas investors, who wish to invest in Indian markets without registering themselves directly in India to save on time. But, they still need to go through a proper due diligence process.

At about Rs 2.2 lakh crore, P-Notes now make up for about 10% of total foreign investment inflows into Indian markets, as against over 55% at the peak of stock market bull run in 2007. Rules have been tightened several times in recent years to check any misuse of this route, but P-Notes have still continued to court controversies.

The changes have been finalised after discussing with concerned stakeholders including some major issuers of P-Notes and they have broadly agreed to the suggested measures in the interest of the markets.