Why Sebi must ask FPIs to be more transparent

livemint.com:

A listed company needs to have a minimum public shareholding (MPS) of 25% to ensure sufficient market depth, to avoid market manipulations and to enable meaningful shareholders’ democracy. Let us for instance consider the case of a promoter already holding nearly 75% of shares of a listed company and wants to gain more control over his entity. The promoter may be tempted to set up some entities, preferably abroad, have some step-down entities under them, preferably strewn across tax havens, and then buy some shares of the company from the market in the guise of foreign portfolio investors (FPIs) who can be categorized as public. The term ‘FPI’ encompasses a wide range of Sebi-registered foreign investors—right from foreign governments to regulated entities like foreign banks, insurance companies to endowments and foundations to unregulated funds, subject to conditions.

History tells us that hiding behind layers of entities is how one attempts to escape the rigours of law enforcement when perpetrating high-profile frauds or tax evasion. Peeling off these layers has become a high priority for regulators. This can be seen in requirements like section 90 of the Companies Act, 2013, mandating companies to report their significant beneficial owners (SBOs). Simplistically, SBOs are individuals who indirectly own at least 10% of the company taken along with direct holdings, or those who exercise indirect control or significant influence. Among others, the Prevention of Money Laundering Act, 2002, requires reporting entities like banks, financial institutions and intermediaries to identify and verify the identity of the beneficial owners (BO) behind their clients. The threshold holding for identifying the BOs based on economic