SEBI Proposes Easing Additional Disclosure Framework For FPIs

To improve ease of doing business, the Securities and Exchange Board of India has suggested tweaking guidelines in reference to the additional disclosure framework for certain foreign portfolio investors on Tuesday.

Under the proposal, the markets regulator has recommended establishing a risk-based threshold to identify and categorise foreign portfolio investors as either land bordering countries or non-LBC entities for disclosure purposes. This would replace the current rule that requires disclosure of every individual interest owner in the fund.

According to the additional disclosure framework for FPIs released in August 2023, FPIs with assets under management exceeding Rs 25,000 crore must provide detailed information on all their investors or stakeholders. This is necessary to determine whether the FPI is effectively domiciled in a land bordering country.

During interactions with industry participants, challenges have been identified with respect to compliance with disclosure requirements.

It has been observed that very large non-exempt funds have breached the size criteria and are, therefore, subject to additional disclosure requirements. Given their sheer size and diversified investor base, such funds face challenges in providing granular details of every person holding any ownership, economic interest or control, SEBI said in its consultation paper.

The regulatory objective of mandating granular disclosure for FPIs breaching the size criteria was to identify whether or not they originated from or were controlled by investors from land bordering countries.

"Such an 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," the regulator said.

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

In its draft papers, SEBI has proposed to modify the disclosure requirements and link the same to an appropriate minimum threshold of disclosure for the identification and categorisation of an FPI as an LBC or non-LBC entity.

"Categorisation of FPI as LBC or non-LBC may be made on the basis of country/nationality of entities owning/controlling/holding economic interest in a suitable majority of AUM of the FPI, on a look-through basis," it added.

Accordingly, 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, will not be required to make further disclosures in terms of framework issued in August last year.

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

In case, the entities holding an economic interest in more than 67% of the AUM of the FPI are from non-LBC, such FPIs should be categorised as non-LBC, and further granular disclosures should not be required.

This higher requirement to specifically identify non-LBCs beyond 50% is to ensure that any LBC holding or influence in the FPI if at all, would be below 33% and hence have lesser significance.

If these thresholds are not met, the FPI should be required to disclose granular details of all entities owning economic interest in the FPI.

SEBI has sought comments from the public till Aug. 20 on the proposal.

(With inputs from PTI).