SEBI lays down rules for Debenture Trustees to conduct Non-SEBI regulated activities

SEBI lays down rules for Debenture Trustees to conduct Non-SEBI regulated activities

Market regulator Securities and Exchange Board of India (SEBI) has issued a detailed framework outlining how Debenture Trustees (DTs) can undertake activities outside SEBI’s regulatory domain. The circular follows the recent amendments to the SEBI (Debenture Trustees) Regulations, 1993.

Under the revised norms, DTs may engage in activities regulated by other financial sector regulators, such as RBI, IRDAI, PFRDA, IFSCA, IBBI or the Ministry of Corporate Affairs or in financial services activities that are not regulated by SEBI or any other regulator. However, all such activities must be carried out strictly through separate, ring-fenced business units operating at arm’s length from SEBI regulated DT functions.

SEBI has mandated that DTs create Chinese Walls between SEBI and non-SEBI activities, maintain separate records and staff, and establish distinct grievance redressal systems for non-SEBI services. They must also prominently disclose on their websites the list of activities not regulated by SEBI and clarify that SEBI’s investor protection mechanisms will not apply to those services. Existing DTs have 30 days to make these disclosures.

In cases where DTs perform activities overseen by other financial sector regulators, they must identify the relevant regulator in their disclosures and fully comply with that regulator’s rules on eligibility, risk management, grievance handling, inspection, enforcement and claims.

SEBI has also required all engagement letters, contracts and client communications to carry upfront disclosures stating that non-SEBI activities fall outside SEBI’s regulatory scope. Stakeholders must confirm in writing that they understand the nature and risks of such activities. For ongoing arrangements, DTs must complete disclosures, collect acknowledgements and file a compliance report with SEBI within six months.

Additionally, DTs undertaking non-SEBI regulated activities must submit a board-approved half-yearly compliance report confirming adherence to the regulation and the circular’s conditions. DTs that are also regulated by the Reserve Bank of India must conduct all DT activities only through separate business units, as mandated.