The Securities and Exchange Board of India (Sebi) shot off another letter to custodians on Tuesday, asking them to separately identify foreign portfolio investors having beneficial owners from mainland China, Hong Kong, and Taiwan.
The regulator has spelt out that beneficial owners need to be identified on the basis of ownership, control, and senior managing official (SMO). Custodians have also been told to notify the regulator on any change in information that was previously provided.
This is the fourth such communication from the market regulator to the designated depository participants/custodians in a month.
"China has now been explicitly defined as including Hong Kong and Taiwan, which do not share a land border with India. Second, beneficial ownership will now mean not only economic ownership but also control," said an industry official. "The regulator is also keen on knowing if there has been any change in beneficial ownership since when the data was first provided."
According to the current Sebi guidelines, the threshold for identification of beneficial owners of FPIs on controlling ownership interest is 25 per cent in case of companies and 15 per cent in case of partnership firms. For high-risk jurisdictions, the threshold is lower at 10 per cent.
Control is the right to appoint the majority of directors or influence the policy decision-making of the entity. SMO is an individual designated by an FPI who holds a senior management position and makes key decisions relating to the FPI.
Last month, the regulator had reached out to custodians asking for beneficial ownership information of investors coming from China, Hong Kong, and 11 other countries.
"The regulator wants to ensure it collects as much information as possible before deciding on any course of action," said another official. "Hong Kong, in particular, is a financial services hub, which hosts fund managers from many regions, including the US and Europe. The regulator would not want to take a hasty decision that may have a significant impact on the market."
Over the years, several Chinese funds that manage $1 billion or more have set up operations in Hong Kong, which serves as a launchpad for mainland managers seeking access to overseas markets. The majority of investments in many such funds are from Chinese investors, making them the ultimate beneficial owners, said experts.
Taiwan, while not an investment hub, has 124 registered FPIs investing in India. The political and legal statuses of Taiwan are contentious issues, with China seeing Taiwan as a breakaway province that will eventually be part of the country again.