Additional disclosure norms for select FPIs will apply irrespective of privacy norms in domicile country: Sebi

Certain entities have been exempted from these additional disclosures including government and government-related investors

Additional disclosure norms for certain foreign portfolio investors (FPIs) will be mandatory, and supersede any protection given by privacy norms of their domicile countries or bilateral treaties, according to the market regulator.

The Board of the Securities and Exchange Board of India (Sebi) on June 28 approved an amendment to SEBI (Foreign Portfolio Investors) Regulations, 2019, that seeks additional disclosures from FPIs that fulfil certain criteria.

Also read: Certain FPIs now have to disclose beneficial owners’ granular details

FPIs holding more than 50 percent of their Indian equity assets under management (AUM) in a single Indian corporate group; or that individually or along with an investor group hold more than Rs 25,000 crore of equity AUM in the Indian markets would need to disclosure additional granular level details regarding entities that hold the FPIs’ ownership, economic interest, and control.

Investor group would be as defined under Regulation 22(3) of the SEBI (Foreign Portfolio Investors) Regulations, 2019.

Certain entities have been exempted from these additional disclosures including government and government-related investors, pension funds and public retail funds, certain listed ETFs, corporate entities and verified pooled investment vehicles meeting certain conditions.

Following this amendment, the select FPIs will need to share this additional granular information despite the privacy laws in their domicile countries or them not crossing the “threshold” that identifies them as beneficial owners under the Prevention of Money Laundering Act (PMLA).

FPIs registration with the Sebi is a “contract-like agreement” wherein they agree to accept the norms defined by Sebi, therefore they will not be bound by the privacy laws of their domicile, according to Madhabi Puri Buch, Chairperson of Sebi.

Buch was speaking at the press conference post the Board meeting.

“(When they register)… they would be saying that they will give Sebi the required information (under the additional disclosures)”, according to Buch.

Sebi Whole-time member Ananth Narayan, who was also present at the press conference, elaborated, “What we are saying is that you (the FPIs) are bound to give us this information if certain criteria are met… If you (the FPIs) are unable to provide such data, your (FPIs’) registration will no longer be valid”.

Also read: Representation for retail investors in REITs, INVITs gets Sebi nod

Sebi will issue a circular with the necessary details in the coming days. Thereafter, existing entities will have three months to bring down their single-group exposure to 50 percent or comply with additional disclosure requirements, failing which their registration will no longer be valid.

The ask for additional disclosure about entities having economic interest comes after the controversy surrounding “opaque structures” of FPIs holding stakes in Adani firms, levelled by Hindenburg Research.

In the press conference, Buch also said that the threshold to decide beneficial owner will remain the same across FPIs and in alignment with the Prevention of Money Laundering Act (PMLA) and Financial Action Task Force (FATF) Regulations—10 percent of shares/capital/profit for companies and trusts and 15 percent for partnerships and unincorporated association or body of individuals.

But FPIs who need to make these additional disclosures, even if they aren’t beneficial owners, will still need to share the details of their economic interest holders.