The Securities and Exchange Board of India's enhanced disclosure framework for Foreign Portfolio Investors with concentrated equity positions entered its enforcement phase in December 2023, with FPIs meeting the prescribed criteria as of 1 November 2023 required to file detailed beneficial ownership disclosures within 90 calendar days. The circular, originally issued on 24 August 2023, mandates granular disclosure of all entities holding ownership, economic interest, or control in qualifying FPIs, on a full look-through basis down to the level of natural persons, without any threshold.
Background
The enhanced FPI disclosure norms were introduced in the aftermath of the Adani-Hindenburg controversy, which raised concerns about the opacity of beneficial ownership structures underlying certain FPIs investing in Indian equity markets. The Hindenburg Research report had alleged that several FPIs with concentrated positions in Adani Group stocks were linked to the group through opaque offshore structures, raising questions about potential round-tripping and manipulative practices.
SEBI's response was to establish objective criteria for identifying FPIs that warranted heightened disclosure, rather than targeting specific entities. The August 2023 circular established a two-pronged trigger: FPIs holding more than 50 per cent of their Indian equity assets under management in a single Indian corporate group, or those individually or with their investor group holding more than Rs 25,000 crore of equity AUM in Indian markets.
Key Provisions
The enforcement framework operates as follows:
Full look-through disclosure: Qualifying FPIs must disclose details of all entities holding any ownership, economic interest, or exercising control, on a full look-through basis up to the level of all natural persons. No materiality threshold applies — every layer of ownership must be disclosed.
Compliance timeline: FPIs that met the triggering criteria as of 1 November 2023 had 90 calendar days to furnish the required disclosures.
Consequences of non-compliance: Failure to make the requisite disclosures results in the cancellation of the FPI's certificate of registration. Non-compliant FPIs are required to liquidate their Indian securities holdings and exit the market within 180 calendar days from the date of cancellation.
Exemptions: FPIs with broad-based, pooled structures and widespread investor bases, as well as government or government-related investors, are exempted from the additional disclosure requirements.
Ongoing obligation: The disclosure is not a one-time filing. FPIs must continue to monitor whether they meet the triggering criteria on an ongoing basis and make fresh disclosures if the thresholds are crossed at any point.
Implications for Practitioners
Securities law practitioners advising FPIs should conduct an immediate assessment of whether their clients meet either of the triggering criteria as of the latest reporting date. The consequences of non-compliance — certificate cancellation and forced liquidation — are severe and leave no room for regulatory discretion.
For custodians and compliance officers, the operational challenge lies in obtaining and verifying full look-through ownership information from FPIs domiciled in jurisdictions with different disclosure standards. The absence of any materiality threshold means that even minor indirect holdings through intermediate entities must be traced to natural persons.
The broader significance of this enforcement framework lies in its signal effect: SEBI is prepared to impose exit obligations on FPIs that do not provide adequate transparency regarding their beneficial ownership structures. This should inform the compliance culture of all FPIs operating in Indian markets, not merely those meeting the current thresholds.