SEBI Proposes Additional Disclosures For High-Risk FPIs
FPIs with concentrated portfolios or ones that qualify as high-risk may have to disclose ownership and control.
Foreign portfolio investors who have a substantial portion of their investments concentrated in a single Indian company or group will have to make additional disclosures, according to a SEBI consultation paper floated on Wednesday.
The Securities and Exchange Board of India proposed a risk-based categorisation of FPIs.
Low risk: Government entities like sovereign funds and central bank funds will qualify.
Moderate risk: Pension or public retail funds with a diverse investor base
High risk: All other FPIs
It's for the high-risk category that SEBI has proposed additional disclosures. The categorisation, coupled with quantitative thresholds, is required to prevent misuse of the FPI route and violations of existing regulations, SEBI said.
If an FPI qualifies as high-risk and quantitative thresholds are met, additional disclosures on ownership, economic interest, and control up to the level of all natural persons will be required. The thresholds proposed by SEBI are: 50% of assets in a single corporate group; and existing high-risk FPIs that have an overall holding in the Indian market of over Rs 25,000 crore.
"Such FPIs shall be required to provide granular data of all entities with any ownership, economic interest, or control rights on a full look-through basis, up to the level of all natural persons and/or public retail funds or large public listed entities." -SEBI
Currently, FPIs are mandated to disclose information about the beneficial owners only when the ownership exceeds the limit specified under the anti-money laundering law. The thresholds are 10% for companies and trusts and 15% for partnerships. The information is not often disclosed, as the FPIs rarely cross this threshold.
According to the regulator, this often leads to promoters of such groups or investors acting in concert using the FPI route to circumvent several regulatory requirements, such as that of maintaining the minimum public shareholding, increasing the risk of price manipulation in such scrips.
The regulator also raised apprehension that the route was being used to circumvent Press Note 3.
According to Press Note 3, entities from countries that share borders with India can only invest in India through the government approval route. Investors from such countries could be investing in India through FPIs based out of non-land-bordering countries, the regulator has noted.
In order to prevent this, it is necessary to identify the investors in such FPIs at a granular level, the regulator has said.
SEBI has asked for comments on its proposals by June 20.
