SEBI Snags New Rules For The Foreign Investors After The Adani Rout in 2023

A lobby representing foreign investors will approach the SEBI to seek a review of the tightened requirements for the beneficial owners of the offshore funds. It has been stated by the two sources.

The concerns have increased over the offshore investments by the Adani Group companies, which have resulted in a directive from the Securities and Exchange Board of India to foreign banks. It would act as a custodian for the investors.

Presently, a consensus has been designed to send a representation to the SEBI through the Asian Securities Industry and Financial Markets Association. SEBI has denied commenting on the matter.
However, ASIFMA has stated in an email that they are still following up with the members.

SEBI’s New Set Of Rules Following The Adani Rout:

Recently, SEBI has called out the custodian banks and asked them to reach out to the FPI clients by March and share information about the beneficial owners by the end of September. If they fail to do so, they would have to unwind their position by March 2024, as stated by valid sources.

SEBI has asserted that if there is no clear beneficial owner, a senior official of the parent fund would be considered the ultimate beneficial owner and can be held accountable if the subsidiary funds do not comply with India’s laws.

The decision has worried the investors.

The source has revealed that it is an integral requirement in many countries like Hong Kong, and Singapore, where disclosing the beneficial owner or the fund’s senior official’s information is mandatory.
What made India an exception is to provide the details of the parent fund’s senior official.

SEBI has mandated that the details should be provided for the already registered funds of the company and any new funds that are to be registered under the company. It has been stated by a regulatory official.
Indian law defines an ultimate beneficial owner as the one who holds 25 percent of the fund. For the funds which are not compliant with the global Financial Action Taskforce or the one called risky funds, the threshold should be 10 percent.

In circumstances where the funds do not have any investor meeting the threshold, the senior manager has been called a beneficial owner, according to the SEBI.

The second source has stated that identifying a senior manager of the parent fund as a beneficial owner can be determined by an enhanced KYC requirement, but they are specifically concerned about accountability.

The founder of Richie Sacheti Associates, a law firm that is inclined toward the structure of funds, has stated that if a person who does not take any part in the decision-making process is held accountable, according to the SEBI regulations, it may disrupt the normal functioning of the funds.

At the same time, SEBI is even emphasizing cooperation from offshore jurisdictions through the G20 platforms.
The regulatory official has stated that the nations like Mauritius and UAE contribute towards a foreign flow of funds in India but are not a part of the FATF member nations.

Sebi is looking for G20 platforms that could be used to increase cooperation for the exchange of information and investigations from non-FATF countries.

Recently, the Indian equity markets have not performed poorly. The market has fallen for eight days in a row, which marks the largest loss for Indian equities since the first covid-19 lockdown was announced.

The rapid selloff in the market is taking place because the liquidity has dried up with the constant hike of rates by the Reserve Bank of India. It is further attributed to the aggressive selling by the foreign institutional investors and the sentimental consequence after the selloff of the Adani Group shares. According to the National Securities Depository Limited, the foreign portfolio investors have offloaded 32518 crore INR worth of shares this year.

The Adani Saga has caused SEBI to have a clear eye on the Indian conglomerate. The regulatory organization was investigating some of the foreign portfolio investors owning shares of the Adani Group to determine the ultimate beneficial owners of the funds.

They are even probing if minimum public holding norms are being met in the letter. The Indian regulators have to seek help from their foreign counterparts in gaining the necessary information about the ultimate beneficial owner of the funds.

The Hindenburg report has accused the Adani Group’s largest public shareholders of being associated with the offshore funds and shells tied with the Indian conglomerate.

Edited by Prakriti Arora