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SEBI brings in additional disclosure requirement for FPIs

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SEBI has recently issued a circular mandating additional disclosures for certain Foreign Portfolio Investors (FPIs).

This is in the backdrop of certain FPI’s being observed to hold concentrated portion of their equity portfolio in a single investee company / corporate group.

The circular remarks such entities could be using the FPI route for circumventing regulatory requirements under SAST Regulations or requirement of maintaining Minimum Public Shareholding in the listed company.

Further, the thresholds for FPIs have been specified in Prevention of Money Laundering (Maintenance of records) Rules, 2005, however, there seems to be a glaring possibility of one natural person holding significant aggregate economic interest in the FPI via various investment entities but not being regulated enough due to each being below the threshold mentioned in 2005 Rules.

To resolve this issue the amendment mandates disclosures in two broad scenarios, which are: (i) FPIs holding more than 50% of their Indian equity Assets Under Management (AUM) in a single Indian corporate group; (ii) FPIs that individually, or along with their investor group hold more than INR 25,000 crore of equity AUM in the Indian markets.

However, above scenarios may not pose significant risk if the ownership interest is of Government or Government related investors. The circular also appreciates the fact that certain genuine circumstances may also prevent some FPIs from adhering to the above limits like in case of imposition of statutory restrictions or when FPI is in the winding down process or in case of newly registered FPI. Such circumstances have been exempted from making the disclosure as per this new amendment.

While the broad principles for this purpose are being outlined in this circular, the detailed mechanism for independently validating conformance of FPIs with the conditions and exemptions mentioned in the circular shall be spelt out in the Standard Operating Procedure that shall be framed and adopted by all the DDPs/ Custodians, in consultation with SEBI.

A copy of the said Circular on Mandating additional disclosures by Foreign Portfolio Investors (FPIs) that fulfil certain objective criteria is enclosed below.

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