The Securities and Exchange Board of India (Sebi) has unveiled a comprehensive proposal to modernize the certification framework for market professionals, marking the first significant update in over a decade. The regulatory overhaul aims to bring more financial market participants under formal oversight while creating new pathways for qualification.
Expanding the Regulatory Net
In a consultation paper released on November 7, 2024, Sebi proposed significant changes to the Sebi (Certification of Associated Persons in the Securities Markets) Regulations, 2007. The most notable change involves expanding the definition of "associated person" to include terms like "regulated entity," "intending to be engaged," and "directly or indirectly."
This expansion means the regulations will now cover not only current employees of registered intermediaries but also those planning to enter the industry and professionals operating in loosely regulated market segments. Siddharth Pai, founding partner at 3one4 Capital, highlighted the practical implications: "Today, you have people claiming to be bankers or agents for start-ups, AIFs, etc., who are neither registered with Sebi nor accountable to any oversight. Many collect fees or even equity under the guise of facilitating investments."
New Certification Pathways
Sebi has introduced a revolutionary approach to professional certification by proposing that long-term academic courses from the National Institute of Securities Market (NISM) can serve as alternatives to examination-based certifications. Currently, most NISM certifications require candidates to clear standardized tests periodically.
Under the new system, individuals completing three-month or longer courses at NISM would be automatically certified for their respective market roles. These courses would emphasize practical knowledge and in-depth understanding of market functions. Additionally, all certification processes—including applications, renewals, and record maintenance—would transition to electronic platforms for improved efficiency.
Phasing Out Senior Professional Exemptions
In a move toward uniform competency standards, Sebi plans to discontinue exemptions that currently allow senior market professionals to bypass certification requirements. Presently, certain senior executives such as directors or long-serving officers are exempt from NISM certification.
Sebi now believes such carve-outs contradict the objective of maintaining consistent competency standards across the industry. As Siddharth Pai noted, "A single year's work repeated for twenty years is not 20 years of experience. Markets, participants, regulations, etc. change - it takes practical experience and learning to excel."
However, the regulator has proposed transitional measures for experienced professionals. Individuals aged 50 or older with at least 10 years of relevant experience may obtain certification through alternative methods such as accumulating classroom credits or completing prescribed long-term courses.
Why These Changes Are Necessary
The proposed reforms address several critical gaps in the current regulatory framework. Sebi noted that certain market participants no longer fall under the "associated person" definition due to market evolution. The introduction of new products and services has created new categories of regulated entities that require proper definition and oversight.
The changes are also expected to encourage student participation in securities markets through the "intending to be engaged" provision. The addition of longer-term courses provides more comprehensive education options while maintaining rigorous standards.
Industry experts anticipate some pushback from market participants who may view these proposals as stricter than existing norms. The consultation paper mentions the introduction of new products, suggesting that Sebi might launch new financial instruments in the coming years.
The deadline for public comments on the consultation paper is November 27, 2024. Market participants and stakeholders have this window to provide feedback before Sebi finalizes the regulatory changes that could significantly reshape professional standards in India's rapidly growing capital markets.
