Panel seeks clear division of power between SEBI, RBI in new code

The Parliamentary Standing Committee on Finance has recommended a clearer division of regulatory roles between SEBI and RBI in the Securities Markets Code, 2025. It advocates for an activity-based approach to avoid overlap and regulatory uncertainty.

Panel Recommends Clearer SEBI-RBI Jurisdiction

The Parliamentary Standing Committee on Finance has recommended a clearer division of regulatory responsibilities between the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI), saying the proposed Securities Markets Code, 2025 should clearly define which regulator oversees which activities to avoid overlap and regulatory uncertainty.

In its report tabled in Parliament on Thursday, the committee said India's financial system consists of several entities that undertake activities falling under more than one financial sector regulator. It noted that regulatory jurisdiction should ordinarily be determined by the nature of the activity being carried out rather than the identity of the entity performing it.

It said, "The Committee further recommend that the revised provisions clearly delineate the respective regulatory jurisdictions of SEBI and the RBI so as to avoid overlap, eliminate potential regulatory gaps and provide greater certainty to market participants". The committee said an entity may legitimately remain under SEBI's jurisdiction for securities market activities while simultaneously being regulated by the RBI for other activities that fall within the central bank's statutory mandate.

It recommended that the government adopt an activity-based regulatory approach, saying it would provide greater legislative clarity, reduce jurisdictional uncertainty and ensure that securities market activities continue to remain under the Securities Markets Code even when undertaken by entities also regulated by the RBI. To implement this, the panel recommended suitable amendments to key definitions in the proposed Code to clarify that exclusions apply only to activities regulated by the RBI and not to entities merely because they are supervised by the central bank.

Strengthening Investor Protection and Market Framework

According to the committee, the revised provisions should clearly define the respective jurisdictions of SEBI and the RBI to avoid regulatory overlap, eliminate possible gaps in supervision and provide greater certainty to market participants. The committee made the recommendation while examining the Securities Markets Code, 2025, which was introduced in the Lok Sabha on December 18, 2025, and referred to the Standing Committee on Finance the following day for detailed examination.

Besides recommending a clearer division of powers between the two regulators, the committee also proposed several amendments to strengthen the proposed law. It recommended that the preamble of the Securities Markets Code explicitly include the objectives of protecting investors, promoting the development of the securities market, ensuring fair, transparent and efficient markets, and preventing undesirable transactions in securities. The committee also recommended that Clearing Members and Foreign Portfolio Investors (FPIs) be specifically included within the definition of "intermediary" to avoid legal ambiguity. It further called for clearer definitions of terms such as "unlawful gain", "wrongful gain" and "loss averted" to improve consistency in enforcement.

The panel also supported giving SEBI broad regulatory, supervisory, investigative and enforcement powers under the new Code, while recommending stronger statutory safeguards, objective standards and greater transparency to prevent misuse of those powers. Among other recommendations, the committee called for a transparent and merit-based appointment process for the SEBI Chairperson and members, greater public consultation before framing major regulations, a framework for disclosure of prolonged investigations, and a comprehensive statutory framework for Virtual Digital Assets, with an interim regulatory mechanism through recognised Self-Regulatory Organisations until such legislation is introduced.

Overall, the committee broadly supported the proposed Securities Markets Code, 2025, while recommending several changes aimed at improving regulatory clarity, strengthening investor protection and enhancing the effectiveness of India's securities market framework.

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