Sebi proposes easing additional disclosure framework for FPIs; to add domicile country as a parameter

The Sebi consultation paper said, "this risk based approach is in line with the ease of doing business perspective for FPIs to attract foreign capital towards fueling domestic capital formation"

For ease of doing business, the market regulator has suggested modification of the additional disclosure framework prescribed for foreign portfolio investors (FPIs).

In August 2023, the regulator had issued a circular mandating disclosure of granular details of all entities holding any ownership, economic interest, or control in certain FPIs, on a full look through basis. This was required only if the FPI had a concentrated holding (or more than 50 percent of their Indian equity AUM) in one Indian corporate group or if the FPI (individually or as an investor group) held more than Rs 25,000 crore of equity AUM in the Indian markets.

Under the proposed framework, these additional disclosures will be needed based on whether their investors are domiciled in a land-bordering country (LBC) and if ownership crosses set thresholds.

The consultation paper, released on July 30, stated: "The regulatory objective of mandating granular disclosure for FPIs breaching the size criteria was to identify whether or not the FPIs originated from / were controlled by investors from Land Bordering Countries (LBC). Such objective can also be achieved by prescribing a suitable risk-based threshold of disclosure of investors and stakeholders, to categorise an FPI as LBC or non-LBC entity, rather than mandating disclosure of each and every interest owner in the fund."

It added, "Further, this risk based approach is in line with the ease of doing business perspective for FPIs to attract foreign capital towards fueling domestic capital formation."

Therefore the modification has been suggested.

FPIs holding more than Rs 25,000 crore of equity AUM in the Indian markets, and making additional disclosures to the extent that the identification and categorisation as LBC or non-LBC can be done, shall not be required to make further disclosures in terms of the August Circular.

To identify an FPI as an LBC or a non-LBC and thus determine the need for additional disclosures, the following parameters have been suggested:

1.If the entities owning/ controlling/ holding economic interest in more than 50 percent of the AUM of the FPI are from LBC, the FPI shall be categorised as LBC and further granular disclosures shall not be required.

2.If the entities owning/ controlling/ holding economic interest in more than 67 percent of the AUM of the FPI are from non-LBC, the FPI shall be categorised as non-LBC and further granular disclosures shall not be required. This higher requirement to specifically identify non-LBC beyond 50 percent is to ensure that any LBC holding or influence in the FPI, if at all, would be below 33 percent, and hence have lesser significance, explained the paper.

3.If the above mentioned thresholds are not met, the FPI shall be required to disclose granular details of all entities owning/ controlling/ holding economic interest in the FPI. However, categorization of the FPI shall be made on the basis of disclosures made by the FPI considering the country/nationality of entities owning/ controlling/ holding economic interest in majority (i.e. more than 50 percent) of AUM of the FPI.