SEBI Revives Proposal for Segregation of Non-Regulated Activities by Debenture Trustees

The Securities and Exchange Board of India (SEBI) has revived a previously deferred proposal requiring debenture trustees (DTs) to segregate activities that fall outside SEBI’s regulatory ambit. These services, though regulated by other financial authorities, must now be managed through distinct business units.

Scope of Permitted Non-SEBI Activities

Under the updated framework, DTs may continue offering fee-based and non-fund-based financial services that are not regulated by SEBI or that come under the purview of another financial-sector regulator. However, SEBI mandates that such services must be conducted strictly on an arm’s-length basis and routed through separate business units (SBUs).

Requirements for Separate Business Units

SEBI has outlined a stringent structure for these SBUs to ensure full segregation from core trustee functions. Each SBU must have:

• A “Chinese Wall” insulates it from trustee operations
• Dedicated and independent staff
• A separate grievance-redressal framework
• Individually maintained records

Shared IT systems or infrastructure may be used, but only with explicit, board-approved protocols.

Mandatory Disclosures for Investors

SEBI has also strengthened transparency requirements. DTs must display on their websites:

• A complete list of non-SEBI regulated activities
• A clear disclaimer stating that SEBI’s investor-protection mechanisms do not apply to disputes arising from such services

For services already in operation, DTs have six months to publish the disclosures, notify all clients about the non-applicability of SEBI protections, obtain written acknowledgements, and submit a compliance report to SEBI.

Additional Compliance for DTs Regulated by Other Agencies

Debenture trustees that are also supervised by the Reserve Bank of India (RBI) must carry out trustee-related activities exclusively through a ring-fenced SBU. This makes segregation mandatory both ways, whether activities fall outside SEBI regulations or trustee functions occur within an RBI-regulated entity.

Compliance with the revised framework must be confirmed in half-yearly board-reviewed reports, ensuring ongoing regulatory oversight.

Also Read: SEBI Proposes Changes to BSDA Rules to Improve Investor Access

Other Financial Regulators Covered

Activities under the jurisdiction of regulators, such as:

• RBI
• Insurance Regulatory and Development Authority of India (IRDAI)
• Pension Fund Regulatory and Development Authority (PFRDA)
• International Financial Services Centres Authority (IFSCA)
• Insolvency and Bankruptcy Board of India (IBBI)
• Ministry of Corporate Affairs

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