Image Credits - okcredit.in
The Securities and Exchange Board of India (SEBI) has proposed significant changes to the disclosure framework for Foreign Portfolio Investors (FPIs) to simplify the regulatory process and enhance ease of doing business. The new framework, which was outlined in a consultation paper released on July 30, introduces domicile-based parameters to determine the need for additional disclosures.
In August 2023, SEBI mandated that FPIs disclose detailed information about all entities holding ownership, economic interest, or control in the fund. This requirement applied to FPIs with concentrated holdings in a single Indian corporate group or those with equity assets under management (AUM) exceeding Rs 25,000 crore in Indian markets. The objective was to ensure transparency regarding the origin and control of these FPIs, particularly focusing on entities from Land Bordering Countries (LBC).
Under the proposed modifications, SEBI aims to shift from a comprehensive disclosure approach to a risk-based framework. The consultation paper suggests that the regulatory goal of identifying whether FPIs are controlled by investors from LBCs can be achieved by categorizing FPIs based on specific thresholds rather than requiring detailed disclosures of every interest owner.
The proposed framework suggests that if entities owning or controlling more than 50 per cent of an FPI’s AUM are from LBCs, the FPI will be classified as an LBC entity. In this case, no further granular disclosures will be required. Conversely, if entities owning or controlling more than 67 per cent of the FPI’s AUM are from non-LBCs, the FPI will be categorized as a non-LBC entity, and additional disclosures will not be necessary. This higher threshold ensures that any influence from LBC entities remains minimal.
If neither of these thresholds is met, the FPI will need to provide detailed information about all entities with ownership or control in the fund. The classification of the FPI will then be based on the majority ownership or control in the fund.
These proposed changes are designed to streamline compliance for FPIs while still achieving the goal of transparency regarding foreign investments. By aligning disclosure requirements with the domicile of investors, Sebi aims to attract more foreign capital and support domestic capital formation, reflecting a commitment to improving the investment environment in India.