SEBI- Simplification Of Onboarding Of Clients By Adoption Of Risk-Based Clients

Posted On - 28 August, 2023 • By - King Stubb & Kasiva

The Securities and Exchange Board of India (SEBI) is contemplating a significant revamp of its client onboarding process in the derivatives market. This move is part of SEBI’s commitment to fostering an environment conducive to ease of doing business while maintaining stringent risk management protocols.

In a recent statement, SEBI announced that it is in the early stages of exploring the possibility of simplifying the process of onboarding clients in the derivatives market. The proposed approach involves a shift towards a risk-based assessment for determining the eligibility of clients to trade in the derivative segment. The existing requirement, as outlined in the Master Circular for Stockbrokers dated May 17, 2023, mandates stockbrokers to collect documentary evidence of the financial capability of all clients intending to engage in derivative trading, among other prerequisites.

The envisioned shift aligns with SEBI’s overarching goal of streamlining compliance procedures for both brokers and investors. By adopting a risk-based approach, SEBI aims to strike a balance between regulatory compliance and facilitating an efficient trading ecosystem. This potential change would eliminate unnecessary hurdles in the onboarding process and expedite market access for investors, thus promoting ease of doing business.

SEBI’s proactive approach to evaluating and fine-tuning its regulatory framework underscores its commitment to continuous improvement and adaptability. As SEBI continues to deliberate on these potential changes, market stakeholders in the legal domain are advised to stay informed about evolving developments in the derivatives market. This impending transformation in client onboarding procedures could have far-reaching implications for legal practitioners, market participants, and investors alike.

In conclusion, SEBI’s contemplation of a risk-based approach to client onboarding reflects its dedication to creating a conducive regulatory environment that prioritizes risk management without stifling retail participation in the derivatives market. As the proposal matures, SEBI’s strategic approach to balancing compliance and ease of doing business is expected to set a precedent for regulatory innovation in the financial sector.