Foreign portfolio investors (FPIs) are expressing apprehension over the 10-day disclosure window provided for submitting details of beneficial owners in the case of fresh breaches of investment thresholds.
Just before the additional disclosure regulations for FPIs become effective, the Securities and Exchange Board of India (Sebi) has released the standard operating procedure (SOP) for custodians.
While the SOP offers clarity on exemptions and formats for granular details, industry players report that FPI custodians are worried about certain implementation challenges.
FPI custodians believe that a 10-day trading window to furnish data from non-individual investors will be quite challenging.
Moreover, they argue that funds breaching specified limits on a passive basis (due to an increase in the value of underlying holdings) will still be required to provide beneficial owner details after November 1.
Sebi has granted a 90-day period for funds that are already in breach of the new thresholds to either realign or provide additional disclosures.
However, those exceeding the limits after the new norms take effect will have only 10 trading days, according to sources who reviewed the SOPs.
“If there is any change in management or a takeover of the entities investing in the fund that holds investments beyond the specified limits, then the fund must provide granular details of the new ownership within 10 trading days.
"Adhering to this timeline could be extremely challenging for the fund. Many funds may lack the capabilities to do so, especially if the beneficial owners are non-individual entities,” said a custodian.
Custodians stated that, in the normal course, it typically takes at least 15-20 days to obtain such details.
Custodians or designated depository participants act as intermediaries between the regulator and overseas investors, handling all compliance and communication.
Starting November 1, FPIs with over 50 per cent exposure in a single corporate group or over Rs 25,000 crore exposure in Indian equities must disclose information about individuals with any ownership, economic interest, or control within the FPI.
Sebi introduced this new framework after facing difficulties in obtaining details of end-beneficial ownership during the Adani-Hindenburg probe into alleged violations of minimum public shareholding norms.
The SOPs, developed in consultation with the industry and a committee of custodians, aim to ensure consistency across all players, prevent regulatory arbitrage, provide definite formats for disclosures, and clarify exemptions for certain funds.
The new SOP makes it clear that only government-related and regulated funds will be exempt, while any private fund, such as a pension fund operated by a non-government entity, must adhere to the stricter disclosure rules.
“Even if three non-individual investors contribute only 1 or 2 per cent to a fund that holds stakes beyond the specified limits, granular details must be provided for all investors of these entities.
"This may pose some operational challenges,” noted an industry player.
While there have been numerous enquiries from FPIs regarding additional disclosures, many have been awaiting guidance on disclosure formats and clarity to proceed with any restructuring or rebalancing, according to industry sources.
Furthermore, if an FPI is located in jurisdictions with restrictive privacy laws, it will be the custodian’s responsibility to seek and provide beneficial owner details to the Indian market regulator or the FPI registration will be cancelled.
