Additional Disclosure Norms for “High-Risk” FPIs

June 2, 2023

The Securities and Exchange Board of India (SEBI) has recently released a consultation paper aimed at strengthening investor protection and promoting transparency in the Indian securities market. It recently unveiled a consultative paper that called for mandatory additional disclosure norms from high-risk foreign portfolio investors that either have a significant overall holdings and/or concentrated single group of exposures in India equity portfolio.

Categorization of FPIs

The consultation paper proposes categorizing FPIs into three risk categories: high, moderate, and low risk. All FPIs, except for government and government-related entities such as central banks, sovereign wealth funds, and pension funds or public retail funds, would fall under the high-risk category. This categorization aims to identify FPIs that may pose higher risks due to their concentrated holdings or overall equity market exposure.

Trigger for Enhanced Transparency Measures

The need for enhanced transparency measures for certain high-risk FPIs was prompted by allegations made by a US-based short seller regarding significant stakes held by some FPIs in companies of the Adani Group. To address such concerns and prevent circumvention of regulatory requirements, SEBI proposes additional disclosure norms to fully identify all holders of ownership, economic, and control rights for these high-risk FPIs.

Disclosure Requirements for High-Risk FPIs

The consultation paper mandates enhanced disclosure requirements for high-risk FPIs with concentrated holdings. These FPIs, holding more than 50% of their equity Asset Under Management (AUM) in a single corporate group, would be required to comply with the proposed norms. Additionally, existing high-risk FPIs with an overall holding in Indian equity markets exceeding Rs 25,000 crore would also need to adhere to the new disclosure requirements.

Impact on FPIs and Compliance Timeline

The proposed norms specifically target high-risk FPIs and will not affect low-risk and moderate-risk FPIs. High-risk FPIs are expected to comply with the new disclosure requirements within 6 months. Failure to do so would require these FPIs to bring down their AUM below the specified threshold within a stipulated timeframe.

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