Description

SEBI specifies conditions for Debenture Trustees to undertake non-SEBI regulated activities through Separate Business Units with Chinese Wall segregation and arms-length basis operations.

Summary

SEBI has specified detailed terms and conditions for Debenture Trustees (DTs) to undertake activities outside SEBI’s regulatory purview, following the incorporation of Regulation 9C in the SEBI (Debenture Trustees) Regulations, 1993 on October 27, 2025. DTs must conduct such non-SEBI regulated activities through Separate Business Units (SBUs) on an arms-length basis with strict Chinese Wall segregation from SEBI-regulated activities. The circular establishes comprehensive operational requirements including separate grievance redressal mechanisms, distinct record-keeping, segregated staffing, and mandatory website disclosures.

Key Points

  • DTs may undertake activities under other financial sector regulators or fee-based, non-fund based financial services activities not regulated by any authority
  • All non-SEBI regulated activities must be conducted through one or more Separate Business Units (SBUs) at arms-length basis
  • Mandatory Chinese Wall segregation required between SEBI-regulated and non-regulated activities
  • Separate and distinct grievance redressal mechanisms must be maintained for non-SEBI regulated activities
  • Staff handling non-SEBI regulated activities must be distinct from those handling SEBI-regulated activities
  • Key managerial personnel are exempt from Chinese Wall restrictions
  • IT infrastructure and other resources may be shared subject to board-approved procedures
  • DTs already registered must transfer activities to SBUs within six months from October 27, 2025 notification
  • DTs regulated by RBI must carry out debenture trustee activities through separate business units

Regulatory Changes

The circular implements Regulation 9C incorporated into the SEBI (Debenture Trustees) Regulations, 1993 through amendments notified on October 27, 2025. This regulation clarifies permitted activities for DTs and establishes the framework for conducting non-SEBI regulated activities.

Permitted non-SEBI activities include:

  1. Activities under the purview of other financial sector regulators (RBI, IRDAI, PFRDA, IFSCA, IBBI, MCA, or others specified by SEBI)
  2. Fee-based, non-fund based activities in the financial services sector not regulated by SEBI or other financial sector regulators

All such activities must be conducted through SBUs with arms-length arrangements and subject to conditions specified by SEBI.

Compliance Requirements

Structural Requirements:

  • Establish one or more Separate Business Units (SBUs) for non-SEBI regulated activities
  • Implement Chinese Wall segregation ring-fencing non-regulated activities from SEBI-regulated activities
  • Transfer existing non-SEBI activities to SBUs within six months from October 27, 2025 (deadline: April 27, 2026, unless extended)

Operational Requirements:

  • Maintain separate grievance redressal mechanisms including escalation procedures for non-SEBI activities within the SBU
  • Prepare and maintain separate records in the SBU for non-SEBI regulated activities
  • Deploy distinct staff for non-SEBI regulated activities separate from SEBI-regulated activity staff
  • Establish board-approved procedures if staff need to cross the Chinese Wall
  • Implement board-approved procedures for sharing IT infrastructure and other resources between regulated and non-regulated activities

Disclosure Requirements:

  • Disclose on website the list of all non-SEBI regulated activities being undertaken
  • Include disclosure stating that SEBI investor protection mechanisms will not be available for non-SEBI regulated activities

Exemptions:

  • Key managerial personnel are not subject to Chinese Wall restrictions
  • Shared resources (IT infrastructure, etc.) permitted subject to board-approved procedures

Important Dates

  • October 27, 2025: SEBI (Debenture Trustees) (Amendment) Regulations, 2025 notified in Official Gazette
  • November 25, 2025: Circular issued by BSE
  • April 27, 2026: Six-month deadline for existing registered DTs to transfer non-SEBI activities to Separate Business Units (subject to extension by SEBI)

Impact Assessment

Operational Impact: This circular requires significant structural reorganization for Debenture Trustees currently undertaking or planning to undertake non-SEBI regulated activities. DTs must invest in creating separate business infrastructure, implementing Chinese Wall protocols, segregating staff, and establishing parallel grievance redressal mechanisms. The six-month timeline creates urgency for organizational restructuring.

Compliance Impact: DTs face enhanced compliance burden with dual operational frameworks - one for SEBI-regulated activities and another for non-regulated activities. Board-level procedures must be developed and approved for staff movement across Chinese Walls and resource sharing arrangements. Documentation and record-keeping requirements effectively double for DTs operating in both spheres.

Market Impact: The regulatory clarity provided through Regulation 9C and this circular enables DTs to diversify their service offerings while maintaining investor protection for SEBI-regulated activities. The arms-length requirement and Chinese Wall segregation ensure conflicts of interest are managed. However, smaller DTs may find the compliance costs prohibitive, potentially leading to market consolidation.

Investor Protection: The mandatory website disclosure requirement ensures transparency for stakeholders regarding which activities fall outside SEBI’s investor protection mechanisms. This clear demarcation protects investors from confusion about regulatory coverage and available recourse mechanisms.

RBI-Regulated DTs: DTs also regulated by RBI face additional structural requirements with mandatory separate business units for debenture trustee activities, creating a multi-layered organizational structure for entities operating under multiple regulatory frameworks.

Impact Justification

Mandatory structural and operational changes required for all Debenture Trustees undertaking non-SEBI regulated activities, with significant compliance implications including Chinese Wall implementation and separate business unit creation within six-month timeline.