In a move aimed at fortifying the custodial ecosystem in India’s financial markets, the Securities and Exchange Board of India (SEBI) notified the SEBI (Custodian) (Amendment) Regulations, 2025 on September 18, 2025. These amendments revise several key provisions of the SEBI (Custodian) Regulations, 1996, bringing them in line with current market realities and the evolving financial landscape.
These amendments will come into force six months from the date of their publication in the Official Gazette, giving custodians time to realign with the new framework.
Key Highlights of the 2025 Amendments
- Increased Net Worth Requirement
One of the most significant changes is the increase in the minimum net worth requirement for custodians from ₹50 crore to ₹75 crore. This change aims to ensure that only well-capitalized entities can operate as custodians, thus enhancing stability and client protection.
Existing custodians are provided a three-year transition window to comply with the enhanced requirement, and must meet this threshold independently of other capital adequacy requirements applicable to their diversified operations.
- Inclusion of “Physical” Custody
The term “physical” has been explicitly inserted before “securities and computer systems” in Regulation 6. This clarifies that custodians are responsible not just for dematerialized assets but also for the safe custody of physical securities – a necessary update given the residual presence of physical instruments in the Indian markets.
- Expanded Scope for Financial Services
Amended Regulation 9 now permits custodians to offer related financial services, opening the door for more holistic service offerings. However, non-banking custodians (those not affiliated with banks) can only do so under conditions specified by SEBI.
- New Governance and Risk Obligations
A new Regulation 19B has been introduced, laying down detailed obligations relating to:
- Governance structures
- Risk management processes
- Technical capacity and infrastructure
- Winding-down frameworks
This marks a shift toward greater operational resilience and regulatory accountability, especially important in today’s digitally interconnected financial world.
- Comprehensive Code of Conduct
New clauses (12–26) added to the Third Schedule form a robust code of conduct for custodians. Key provisions include:
- Avoiding unfair competition and misleading advertising
- Ensuring director and senior management “fit and proper” status
- Client grievance redressal mechanisms
- Transparent and honest disclosures to regulators
- Strong internal controls to prevent fraud, theft, and misconduct
These additions promote client-centricity, ethical business practices, and regulatory cooperation.
Implications for the Industry
This regulatory overhaul reinforces SEBI’s commitment to investor protection, systemic integrity, and market development. Custodians will need to:
- Reassess capital structures
- Strengthen internal systems and controls
- Prepare for more stringent compliance audits
- Possibly diversify their service offerings within permitted frameworks
For market participants and investors, this is a positive development, ensuring that custodians operate at a higher standard of financial and operational excellence.
Conclusion
The SEBI (Custodian) (Amendment) Regulations, 2025 are more than just procedural updates—they signal a strategic shift toward a more secure, competitive, and transparent custodial framework. As India’s financial markets deepen and diversify, these regulatory measures are crucial to ensure long-term confidence and stability.
For custodians, the clock is ticking. The next six months will be critical in aligning with the new regulatory landscape. And for investors, it means safer hands managing their assets.