India’s market regulator, the Securities and Exchange Board of India (Sebi), has issued more than 2,200 administrative warnings to foreign portfolio investors (FPIs) over the past two years, marking a significant shift toward stricter oversight. This proactive approach follows a period of no such warnings between FY2019 and FY2023.
These warnings have proliferated in the wake of the 2023 Hindenburg report, which prompted Sebi to ramp up its monitoring of foreign funds and tighten beneficial ownership rules. Through a circular issued on August 24,2023, Sebi had also forced some of offshore funds with concentrated India portfolio to disclose granular details of their beneficial owners.
A warning letter is a formal administrative notice issued by Sebi to market entities and listed companies pointing out non-compliance with rules or the need to improve internal controls. Unlike an adjudication order issued by Sebi, which is quasi-judicial in nature and imposes penalties or restrictions, a warning letter doesn’t impose any cost. But if the violation continues despite the warning, Sebi can always institute a probe, say legal experts.
Post Hindenburg, Sebi conducted an extensive analysis of FPI data and during the exercise it found several funds had committed minor infractions including non-submission of full beneficial ownership data as required in the erstwhile FPI regime. “Several funds nominated their investment manager or lawyer as beneficial owners and did not submit details of the owners who were exercising actual control,” said a person cited above. “Besides, there were also certain deficiencies found like not submitting appropriate Apostille and few funds did not submit on time details as required by the August 24 circular.”
Apostille is a certificate of authenticity of documents such as documents provided for identity verification purposes in Know your customer(KYC) for international use. This is based on Hague International Convention and the government of the country generally designates an authority which has powers to issue Apostille.
An email sent to Sebi remained unanswered.
The Hindenburg report, published on January 24,2023 had alleged certain foreign funds may have been used by promoters of Adani Group to circumvent minimum public shareholding(MPS) norms. Adani Group has denied the allegation.
‘High-risk’ funds asked to disclose beneficial owners
Sebi rules prohibit Indian promoters from owning more than a 75% stake in their companies. Concerns regarding potential misuse of FPI structures by Indian promoters to circumvent MPS rules were raised both in the industry and within the regulator.
Following this, Sebi issued the August 24 circular, significantly tightening the FPI rules. Under these rules certain ‘high-risk’ foreign funds were required to disclose granular information about their beneficial owners.
The rules applied to FPIs with a India portfolio value exceeding Rs 25,000 crore or those FPIs who had invested 50% or more of their Indian portfolio in a single company or group companies. These FPIs were required to provide "look-through" disclosures of their ownership and economic interests, identifying the ultimate natural persons behind the investment. Certain kinds of public funds such as sovereign wealth funds, pension funds and retail investor driven mutual funds were exempt from the disclosure requirements.
“Over the years, FPI rules have been significantly liberalised with 2014 tweaks to rules even entrusting global custodians to issue FPI licenses. Until the Hindenburg report, there was little regulatory action against foreign funds, but things changed after the Hindenburg report,” said a lawyer who advises FPIs in Sebi related matters.
However, Sebi subsequently toned down the beneficial ownership disclosure rules. In March 2025, Sebi raised the asset value threshold for applicability of the disclosure rules from Rs 25,000 crore to Rs 50,000 crore. Sebi also provided exemptions to university funds, endowments and funds with wide investor base.
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