Sebi mulls changes in norms for FPIs from land-bordering countries

The market regulator has proposed linking the disclosure requirements to a minimum threshold to identify whether the FPI is based in an LBC

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The Securities and Exchange Board of India (Sebi) is mulling changes in regulations for foreign portfolio investors (FPIs) belonging to land-bordering countries (LBCs).

The market regulator has proposed to link the disclosure requirements to a minimum threshold to identify whether the FPI is from LBC or not.

The identification as LBC is crucial to monitor inflows from bordering countries like China. The changes come amid fears of certain FPIs exploiting the regulatory arbitrage between FPI and foreign direct investment (FDI) norms.

Sebi has earlier provided exemption to various other FPIs like sovereign wealth funds, certain public retail funds, exchange-traded funds on specified overseas exchanges, regulated pooled investment vehicles, university funds, among others from the granular disclosures.

“Categorisation of FPI as LBC or non-LBC may be made on the basis of country/nationality of entities owning/controlling/holding economic interest in a suitable majority of AUM of the FPI, on a look through basis,” notes the consultation paper.

If the entities holding economic interest more than 50 per cent of the AUM of the FPI are from LBC, then the FPI will be categorised as LBC and further granular disclosures will not be required. Similarly, if 67 per cent of the AUM is held by non-LBC investors, then it will be categorised as non-LBC as no further granular disclosure will be required.

 “This higher requirement to specifically identify non-LBC beyond 50 per cent is to ensure that any LBC holding or influence in the FPI, if at all, would be below 33 per cent, and hence have lesser significance,” said Sebi.

However, if these thresholds are not met then they will have to disclose the granular ownership details.

The identification of FPI as LBC or non-LBC entity will be on the basis of verification of actual disclosures by the designated depository participants and not based on mere declarations.

As per the market regulator’s directive, FPIs with holdings beyond thresholds such as 50 per cent equity asset under management 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.