Sebi to SC: Difficult to identify natural persons in FPIs under old rules

economictimes.indiatimes.com:

Supreme Court in the Adani Group case that since custodians were not legally mandated to keep granular details of all underlying investors with ownership in entities below a threshold, there was a possibility that one individual or entity could hold significant stakes in overseas funds through multiple platforms, each individually below the limit for identification as a beneficial owner (BO). The Securities and Exchange Board of India (Sebi) has filed an application in the Supreme Court detailing its response to various suggestions made by the apex court-appointed expert committee in the wake of the Hindenburg report against the Adani Group on potential breaches of securities laws.

The expert committee had said that the difficulties experienced by Sebi in identifying holders of economic interest in the foreign funds investing in Adani Group companies were partly because of the repeal, in 2019, of the 2014 Foreign Portfolio Investor (FPI) provisions on «opaque structures». However, this was not the case, Sebi's responses to the court showed.

Under FPI 2014 regulations, certain entities that undertook to provide BO details, when sought, were allowed to be registered as FPIs. There was no requirement to give upfront BO declarations.

The requirement to disclose BO was triggered only in respect of the entities that were holding above the threshold limit of 25% ownership, or beneficial interest. «There never was any requirement to disclose the last natural person above every person owning any economic interest in the FPI,» Sebi told the apex court in its filings that were seen by ET.