The Securities and Exchange Board of India (SEBI) released a consultation paper on the framework for mandating additional disclosures by certain high-risk Foreign Portfolio Investors (FPIs).20 SEBI noted that certain FPIs with highly concentrated portfolios may have beneficiaries (such as promoters) in contravention of norms on Minimum Public Shareholding (MPS) and Foreign Direct Investment. Currently, the minimum public shareholding in India is 25% of the total equity.21 Specifically, the Foreign Direct Investment Policy of 2017 mandates that beneficiaries who are citizens of or located in a country sharing a land border with India can only invest in India through the government route. This Policy does not cover FPIs.
The key proposals in the consultation paper are.
▪ Categories of FPIs: FPIs will be segregated into low, moderate, and high-risk categories. Low risk FPIs will include government and government related entities such as central banks and sovereign wealth funds. Medium risk FPIs will include pension funds and retail funds with widespread and dispersed investor base. Funds not defined as low or medium risk funds will be designated as highrisk funds.
▪ Disclosures: Currently, Beneficial Owners must be identified under provisions of the SEBI (Foreign Portfolio Investors) Regulations, 2019. These regulations have been framed in accordance with the Prevention of Money Laundering (Maintenance of Records) Rules, 2005.22 If an entity owns (or is entitled to capital or profits) 10% or more of companies or trusts (15% for partnerships), they are considered a Beneficial Owners. 20 Individuals exercising ultimate control such as the right to appoint management are also considered Beneficial Owners. Under the proposed framework, high risk funds (with more than 50% of their funds invested in a single corporate group) will have to provide complete ownership details (with granular details down to individuals) without any thresholds. Comments are invited until June 20, 2023.
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