Sterner disclosure rules for FPIs


Sterner disclosure rules for FPIs

Foreign portfolio investors (FPIs) trading  on Indian stock exchanges will have to follow sterner disclosure rules.

The government, in a notification issued Wednesday, said that offshore funds  will have to inform their custodians within seven working days of any 'direct or indirect change' in their control, ownership, and structure.

Custodians are banks  and non-bank institutions which hold the securities and cash account of FPIs as well undertake the 'know your customer' procedures under the anti-money laundering rules.

The custodians in turn will have to alert the Securities and Exchange Board of India (Sebi) within two days all such 'material changes' reported by their FPI clients.

Sebi rules:  An FPI, registered with Sebi, has to renew its licence every three years by paying a little less than $3,000. Along with filing a common application form, a new FPI has to generate a permanent account number, and submit a set of documents like agreements with custodian and complete KYC formalities which includes sharing BO details. At present, the custodian informs Sebi if there is a six-month delay by an FPI client in sharing key information.

According to the notification, Sebi would spell out from time to time the additional documents that a fund may have to share. About a month ago, Sebi told custodian banks to share the BO details of FPIs as on March 31, 2023, by September. Soon, after an amendment of the rules under the PMLA lowered the cut-off levels for BOs. The regulator also told custodians to disclose the names of senior management officials and asset managers of the fund.

The spate of changes in the BO rule comes in the wake of allegations by the US short-seller Hindenburg against Adani group firms. It is felt that that a lower BO limit (to 10%) would make it tougher for those who were splitting legal ownership to mask their identities and stay below the radar.

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