SEBI permits brokers to offer services regulated by financial authorities like IRDAI, RBI

While brokers can diversify into multiple financial services, the applicable regulatory standards and compliance requirements of each sector will remain intact.

Any activity carried out by a stock broker under the regulatory framework of another financial sector regulator, or any other authority specified by the board, will fall squarely under the jurisdiction of that regulator or authority, said SEBI. For example, if a stock broker undertakes insurance distribution or related services, those activities will be governed by IRDAI regulations rather than SEBI’s securities market rules.

“A stock broker may carry out an activity under the regulatory framework of another financial sector regulator or any other specified authority in the manner specified by the board. Such activity shall fall under the purview of the concerned financial sector regulator or authority,” it said.

The market regulator further clarified the scope of the term “financial sector regulator” for the new rule. According to SEBI, the expression refers to any authority or body established under prevailing laws to regulate services or transactions in the financial sector. This includes, but is not limited to, the RBI, the IRDAI, the Pension Fund Regulatory and Development Authority, the International Financial Services Centres Authority (IFSCA), the Ministry of Corporate Affairs (MCA), and IBBI. SEBI has also retained the flexibility to include any other authority as it may specify from time to time.

While allowing diversification, SEBI has simultaneously reinforced the importance of strong internal controls and compliance mechanisms. The regulator has mandated every stock broker to appoint a designated compliance officer. This individual will be responsible for monitoring compliance with the SEBI Act, the Securities Contracts (Regulation) Act, 1956, and all the rules and regulations framed under these laws. The compliance officer will also oversee adherence to the bye-laws, notifications, guidelines, and instructions issued by SEBI and recognised stock exchanges.

The compliance officer will also ensure timely and effective redressal of investor grievances, a function that SEBI considers central to maintaining trust and integrity in the securities market. By strengthening the compliance framework, it aims to ensure that business expansion by brokers does not come at the cost of investor protection or regulatory discipline.

SEBI has also reiterated clear boundaries on the kinds of activities brokers are permitted to undertake. They have been directed to refrain from engaging in or promoting schemes that promise indicative, guaranteed, fixed, or periodic returns or payments if such schemes are not permitted under existing regulations. This restriction applies not only to SEBI regulations but also to the bye-laws, notifications, and circulars issued by the Board or recognised stock exchanges.

Further, brokers have been cautioned against operating unauthorised collective investment schemes or portfolio management services. SEBI said stock brokers must avoid engaging in any activity that is not permitted under Rule 8(1)(f) and Rule 8(3)(f) of the Securities Contracts (Regulation) Rules, 1957. These provisions are designed to prevent intermediaries from undertaking activities that fall outside their authorised scope, posing risks to investors.

Overall, the new framework seeks to strike a balance between enabling business growth and preserving regulatory clarity. SEBI aims to promote innovation and efficiency in the financial sector without diluting investor safeguards by allowing brokers to offer a broader suite of financial services — while keeping them under the supervision of the appropriate regulator.