FPIs may lose exemption benefits as Sebi issues updated SOPs for custodians

The SOP also provides certain examples of the structures followed by regulators in other jurisdictions like the United States and Australia

Certain foreign portfolio investors (FPIs), which operate as pooled investment vehicles (PIVs), may not be exempt from the additional disclosure mandates by the Securities and Exchange Board of India (Sebi) following an update in the standard operating procedures (SOPs) for custodians.

An updated version of the SOPs has specified several conditions to be met for PIVs to benefit from the exemptions granted.

These include no segregated portfolios, independent investment manager, and investors having pari-passu (equal) rights in the entity.

“While the prescription of objective criteria grants respite to custodians in ensuring compliance, it has greatly narrowed the list of FPIs set up as PIVs from being exempt from the additional disclosure requirements. It is noteworthy that even International Financial Services Centre (IFSC) funds have not extended the exemption,” said Suresh Swamy, partner, Price Waterhouse & Co. LLP.

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According to the latest update, pooled investment vehicles that do not meet the new conditions have time till August 20 to realign their portfolio before the mandate for granular disclosures on the ownership kicks in.

The SOPs also provide examples of structures followed by regulators in other jurisdictions like the United States and Australia.

According to the directive, FPIs with holdings beyond thresholds such as 50 per cent equity assets under management (AUM) in a single corporate group or over Rs 25,000 crore in the domestic market will have to comply with the additional disclosures. Under this, FPIs need to provide detailed ownership data.

However, a slew of FPIs have been exempted from this compliance. These include sovereign wealth funds, certain public retail funds, exchange-traded funds on specified overseas exchanges, and regulated pooled investment vehicles.

“In case an FPI or an entity identified on a look through basis does not satisfy the conditions, any exemption granted to such FPI/entity in terms of an earlier version of SOP, shall not be available with effect from May 22, 2024. Such affected FPIs shall realign their portfolio, if required, on or before August 20, 2024,” notes the updated SOPs.