SEBI proposes relaxation of additional disclosure framework for certain Foreign Portfolio Investors

New SEBI regulations 2024: To enhance the ease of doing business, the Securities and Exchange Board of India (SEBI) on Tuesday proposed amendments to the additional disclosure framework for specific foreign portfolio investors (FPIs).

SEBI has suggested implementing a risk-based threshold for identifying and categorising FPIs as entities from land bordering countries (LBC) or non-LBC entities. This approach aims to replace the current rule that mandates the disclosure of every interest owner in the fund.

According to the additional disclosure framework issued in August 2023, FPIs with assets under management (AUM) exceeding Rs 25,000 crore must provide detailed information on all their investors or stakeholders on a look-through basis to determine if the FPI is effectively domiciled in an LBC.

Industry participants have identified compliance challenges with these disclosure requirements. SEBI's interactions with the industry revealed that large non-exempt funds, due to their size and diversified investor base, struggle to provide granular details of every person holding ownership, economic interest, or control.

"The regulatory objective of mandating granular disclosure for FPIs breaching the size criteria was to identify whether or not the FPIs originated from or were controlled by investors from Land Bordering Countries (LBC)," SEBI stated in its consultation paper.

"This 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 the disclosure of each and every interest owner in the fund," the regulator added.

This risk-based approach aligns with the ease of doing business perspective for FPIs, aiming to attract foreign capital to support domestic capital formation.

SEBI's draft proposal suggests modifying the disclosure requirements, linking them to an appropriate minimum threshold for identifying and categorising an FPI as an LBC or non-LBC entity.

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

Under the proposed framework, FPIs holding more than Rs 25,000 crore of equity AUM in the Indian markets and making additional disclosures sufficient for identifying and categorising as LBC or non-LBC will not need to make further disclosures as per the August 2023 framework.

If 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 will not be required. Conversely, if entities holding an economic interest in more than 67 per cent of the AUM of the FPI are from non-LBC, the FPI should be categorised as non-LBC, and further granular disclosures will not be required.

This higher requirement to identify non-LBCs beyond 50 per cent ensures that any LBC holding or influence in the FPI remains below 33 per cent, minimising its significance. If these thresholds are not met, the FPI will need to disclose granular details of all entities owning economic interest in the FPI.

SEBI has invited public comments on the proposal until August 20.

(With PTI inputs.)