DTs need to form separate entities for non-Sebi regulated financial activities

New Delhi: Markets regulator Sebi on Tuesday issued comprehensive guidelines requiring Debenture Trustees (DTs) to house all non-Sebi-regulated financial activities in a separate business unit (SBU), ensuring strict segregation from their Sebi-regulated functions. These activities must be carried out on an arm’s-length basis, segregated by a Chinese Wall and ring-fenced from the Sebi regulated activities”.

The move follows Sebi’s recent clarification on what additional functions DTs may undertake alongside their core regulatory work. DTs may engage in activities regulated by other financial-sector bodies—such as the RBI, IRDAI, PFRDA, IBBI, MCA and IFSCA—provided they meet those regulators’ compliance requirements. They may also perform fee-based, non-fund-based financial services not overseen by any regulator, subject to strict conditions.

Sebi said DTs must maintain independent handling of complaints, keep separate records for non-Sebi work, and assign different staff to these functions. Movement of employees across the Chinese Wall will be allowed only through board-approved procedures, except for key managerial personnel. Shared IT and infrastructure may be used if safeguards are in place.

DTs must disclose all non-Sebi activities on their websites along with a clear statement that Sebi’s investor protection mechanisms do not apply. Existing DTs must publish these disclosures within 30 days. Before offering any non-Sebi service, DTs must inform clients of the regulatory status and obtain written consent.

For existing clients, this process must be completed within six months. If a DT is also regulated by the RBI, all trustee functions must comply with these SBU norms.

In a separate circular, Sebi revised the framework for the Recovery Expense Fund (REF), emphasising that it serves as a pool for DTs to swiftly initiate enforcement or legal action when issuers default. DTs may use REF without prior debenture-holder approval for activities such as voting, seeking consents, holding meetings, filing legal applications, hiring counsel and availing asset-recovery services—provided they notify debenture holders and update their website. Any other use requires prior investor approval and stock exchange intimation. Sebi also outlined processes for requesting fund release, auditor verification and timelines for stock exchanges to disburse funds.

Another circular set new timelines for issuers to submit mandatory information to DTs. Quarterly security cover certificates must be filed within 60 days of each quarter-end (75 days for the final quarter), while half-yearly submissions—such as pledged security values, DSRA details and guarantor net-worth certificates—must also be provided within 60 days. Annual audited guarantor details for corporate guarantees must be submitted within 60 days of the financial year-end. Valuation and title-search reports for movable and immovable assets must be filed once every three years.

These norms take effect from the quarter ending December 31, 2025.