Sebi approves regulatory sandbox for live testing of new products by market players

FE Bureau
SAT, Sebi order, PACL Ltd, PFUTP Regulations, regulatory norms, PACL directors

The Securities and Exchange Board of India (Sebi) in its Board meet on Monday has introduced the Regulatory Sandbox, a live testing environment where entities will be eligible for testing their new products, processes, services and business models on a limited set of eligible customers for a specified period of time with certain relaxations.
Eligible entities include those registered with Sebi under Section 12 of the SEBI Act 1992. "An entity can participate on its own or use the services of a FinTech firm," the regulator said, adding that it has considered the cross-domain approach for Regulatory Sandbox wherein a regulated entity shall be permitted to test solutions for activities for which it is not registered.

This is believed to be the last Board meet of Sebi under the tenure of its current chairman Ajay Tyagi. "It is a hands-on job. It was definitely a deep dive as compared to just being on the surface or the stratosphere and it has been a good experience," Tyagi said, talking about his tenure as Sebi chairman. In regard to Karvy case, Tyagi told reporters during a press conference that their dues amount to about `1,189 crore of which there is a shortfall of around `678 crore from Karvy Stock Broking, which is expected to be settled by March this year.

"NSE has issued a notice to Karvy and we have been told that Karvy is in process to sell stake in one of their companies where term-sheet has also been agreed. Karvy has claimed that they will clear all the outstanding dues by the end of March," Tyagi said. The markets regulator has announced various changes pertaining to investment advisory. Sebi indicated that there has to be a segregation of advisory and distribution activities at client level to avoid conflict of interest. An individual investment advisor shall not provide distribution services, Sebi said.

According to market participants, corporate advisors are currently able to provide advisory and distribution services to the same clients. With the new regulations taking effect, this would not be possible anymore. The regulator has also indicated about an introduction of upper limit on the fees charged to investors. Market experts say this will be keenly watched out for as this is something that can impact their revenues.

There will be an enhanced eligibility criterion for registration as an investment advisor including net worth, qualification and experience requirements. At the same time, existing individual investment advisors will be grandfathered from complying with enhanced qualification and experience. Sebi also stated that provisions for a fast track rights issue of units by REITs and InvITs will be provided for in the respective regulations.

The regulator said as an alternative to the requirement of 5 years' experience in the infrastructure sector for investment manager of an InvIT, the combined relevant experience of not less than 30 years of the directors/partners/employees of the investment manager shall also be considered. In order to reduce the concentration of custodial services for gold or gold-related instruments, Sebi's board also approved the proposal to amend regulations providing for non-bank custodians. Furthermore, in regard to closed-ended schemes, the board has also decided that sponsor or AMC shall also invest in such schemes in order to bring uniformity across schemes.