BACKGROUND
Prior to March 15, 2023, a foreign portfolio investor ("FPI") was required to 'forthwith' inform the Securities and Exchange Board of India ("SEBI") and its designated depository participant ("DDP") in writing, if any information or particulars previously submitted to SEBI or the DDP (a) were found to be false or misleading, in any material respect, (b) or had any material change, including any direct or indirect change in its structure or ownership or control of the FPI. The said disclosure requirement was amended on March 15, 2023 and a timeline of 'seven (7) working days' was substituted for 'forthwith'. Pursuant to this amendment, we witnessed that most of our clients faced challenges in making timely disclosures, within the prescribed seven (7) working days timeline, due to various reasons, such as collation of data amongst group entities and/ or external parties, obtaining wet ink signatures from signatories across jurisdictions, discussions with the DDPs, sharing the hard and soft copies of the required documents, etc. SEBI also received several representations from market participants seeking relaxations in the said timeline of seven (7) working days for the disclosures. In light of this, on February 7, 2024, SEBI issued a consultation paper seeking comments/ suggestions on the proposal to give relaxation in timelines for disclosure of material changes by FPIs.
PROPOSAL
While the FPI Regulations provide for an obligation to make disclosures to SEBI and their DDPs regarding any material changes, within seven (7) working days, the Prevention of Money-laundering (Maintenance of Records) Rules, 2005 ('PML Rules'), which are also applicable in case of FPIs, provide for a period of thirty (30) days for submission of documents for any update in the information provided by a client of a reporting entity. Hence, in order to bring consistency and address the concerns of the market participants, SEBI proposed to categorize the material changes to be notified by the FPIs into the following two categories for the purpose of mandating timelines for notification of such changes:
Type I: changes which require FPI to seek fresh registration or which affect any privileges/exemption available to the FPI; and
Type II: all other material changes.
An indicative list for Type I material changes, which include change of jurisdiction, acquisition/ merger/ demerger resulting in cessation of existence of FPI, restructuring of the legal form (e.g. corporate to trust), etc. has been proposed in the consultation paper.
Further, in a major relief to the FPIs, SEBI has proposed the following :
- Type I material changes shall be informed by FPIs within seven (7) working days of the occurrence of the change and the supporting documents (if any) shall be provided within thirty (30) days of such change.
- Type II material changes shall be informed and supporting documents (if any) shall be provided by FPIs within thirty (30) days of such change.
In our view, this is a very positive development for the FPI industry, which should address major concerns and challenges currently faced by FPIs in making timely disclosures. We understand that the said proposals of SEBI are in line with the Government of India's efforts to enhance Ease of Doing Business in the country. While SEBI has currently only issued a consultation paper, we are confident that SEBI will very soon issue a circular to implement the positive proposals in the consultation paper.
Originally Published 15 February 2024
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.