SEBI tightens the noose on offshore funds coming to India

SEBI tightens the noose on offshore funds coming to India

Seeks information on beneficiaries within four months

The Securities and Exchange Board of India (SEBI) has directed foreign funds investing in the country to identify their parent financial institution to help unravel opaque ownership structures.

The directives are a part of the letter sent recently by SEBI to custodian banks, through which funds flow into the country. The information is sought by September.

The move follows a regulatory investigation into suspected violations in overseas investments in the Adani Group of companies, which has denied all allegations.

The Supreme Court-appointed panel to oversee the investigations cited difficulties in obtaining information from offshore entities as one reason the regulator has struggled to reach any conclusion.

The markets regulator’s missive said it found instances of foreign portfolio investor (FPI) registration being granted to branches of banks. It mentioned, "Since the branch of a bank is not a separate legal entity, (the custodian bank) shall ensure that their client is a legal entity."

The custodian banks are also required to identify a senior officer of the legal entity as a beneficial owner in the case that no single investor holds more than 10 percent of the fund. The aim is to make the sources of money coming into India transparent.

SEBI desires the parent financial institution must be a separate, identifiable legal entity regulated by the appropriate regulator of a cooperative jurisdiction. It stated that funds failing to identify their parent institutions within four months will have to wind up by March 2024.

According to Prakhar Dua, leader for financial services and regulatory practice at law firm Nishith Desai Associate, “SEBI's endeavor is to pierce through opaque structures and discover actual beneficial owners who ultimately own, control, or influence an FPI entity."