Sebi proposes to relax additional disclosure framework for certain FPIs

New Delhi: To improve the ease of doing business, markets regulator Sebi on Tuesday proposed tweaking guidelines pertaining to the additional disclosure framework for certain foreign portfolio investors (FPIs).

Under the proposal, Sebi has suggested a suitable risk-based threshold for the identification and categorisation of FPIs as land bordering countries (LBC) or non-LBC entities for the disclosure requirement rather than the current rule that mandates disclosure of each and every interest owner in the fund.

As per the additional disclosure framework for FPIs issued in August 2023, certain FPIs with assets under management (AUM) exceeding Rs 25,000 crore are required to provide granular details of all their investors or stakeholders on a look-through basis to ascertain whether the FPI is effectively domiciled in a land bordering country (LBC) or not.

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 the FPIs originated from / were controlled by investors from Land Bordering Countries (LBC).

"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 per cent 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 per cent of the AUM of the FPI are from non-LBC, such FPI should be categorised as non-LBC, and further granular disclosures should not be required.

This higher requirement to specifically identify non-LBCs beyond 50 per cent is to ensure that any LBC holding or influence in the FPI if at all, would be below 33 per cent 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.

The Securities and Exchange Board of India (Sebi) has sought comments from the public till August 20 on the proposal.