The Securities and Exchange Board of India, through a circular dated 15 March 2024, introduced enhanced disclosure requirements for Foreign Portfolio Investors with significant exposure to Indian equity markets. The amended norms under the SEBI (Foreign Portfolio Investors) Regulations, 2019 mandate granular beneficial ownership disclosure from FPIs whose Indian equity assets under management exceed specified thresholds, representing a significant tightening of transparency requirements for overseas investors.
Background
The regulatory action follows sustained concerns regarding opaque ownership structures among certain FPIs investing in Indian listed companies. Investigations and market analyses had raised questions about potential round-tripping — where Indian capital is routed through foreign jurisdictions and reinvested in Indian markets through FPI vehicles to circumvent regulatory restrictions on domestic investment patterns.
The Hindenburg Research report on the Adani Group in January 2023, and the subsequent scrutiny of FPI holdings in Adani entities, brought the issue of FPI ownership transparency to the centre of regulatory discourse. SEBI's expert committee on FPI regulations had recommended strengthened disclosure norms, particularly for concentrated holdings in single corporate groups.
The amendments build upon SEBI's August 2023 circular that first introduced additional disclosure obligations for certain categories of FPIs, and represent the finalisation of the framework after public consultation.
Key Provisions
The circular establishes the following requirements:
Threshold triggers: FPIs with Indian equity assets under management exceeding Rs 25,000 crore, or those with more than 50 per cent of their total AUM invested in a single Indian corporate group, are required to make enhanced disclosures.
Granular beneficial ownership disclosure: Qualifying FPIs must disclose the identity and holding percentage of all beneficial owners, natural persons, and economic interest holders down to the ultimate level, going beyond the standard beneficial ownership thresholds under anti-money laundering regulations.
Compliance timeline: FPIs meeting the threshold criteria were directed to provide the enhanced disclosures within a specified compliance window, with designated depository participants responsible for verification and reporting to SEBI.
Concentration monitoring: Custodians and designated depository participants are required to implement systems for ongoing monitoring of FPI concentration levels and trigger disclosure obligations when thresholds are breached.
Consequences of non-compliance: FPIs failing to furnish the required disclosures face restrictions on fresh purchases and, in cases of persistent non-compliance, may be subject to mandatory wind-down of their Indian equity positions.
Implications for Practitioners
Securities law practitioners advising FPI clients must conduct an immediate assessment of whether their clients meet the threshold triggers. For FPIs with concentrated Indian equity portfolios, particularly those invested significantly in a single corporate group, the compliance obligation is immediate and substantive.
The practical challenge for many multi-layered fund structures — particularly those organised as master-feeder arrangements or involving multiple pooled vehicles — lies in identifying and disclosing ultimate beneficial owners down to the natural person level. Practitioners should anticipate that complex fund structures may require restructuring or additional documentation to satisfy the granular disclosure standard.
For listed companies with significant FPI shareholdings, the enhanced disclosure regime may result in greater visibility into the identity of their overseas investors. Corporate governance advisors should prepare boards for potential revelations regarding the ultimate ownership behind FPI positions, which could have implications for related-party transaction assessments and promoter group identification.