The Securities and Exchange Board of India (SEBI) will relax KYC rules for foreign portfolio investors starting December 1, 2026, to reduce compliance friction. In a separate action, the regulator has imposed a ₹1 crore penalty on Central Depository Services (India) Ltd (CDSL) for operational and governance failures during the 2023-24 fiscal year.
The Securities and Exchange Board of India (SEBI) has announced a two-pronged approach regarding market regulation. The regulator is moving to simplify compliance requirements for foreign investors while simultaneously taking strict action against institutional lapses at a major depository.
Easing Compliance for Foreign Investors
Starting December 1, 2026, foreign portfolio investors (FPIs) will face a lighter administrative workload. SEBI has decided to double the mandatory know-your-customer (KYC) review period from one year to two years. Furthermore, the extended review cycle has been increased from three years to eight years.
This decision is aimed at reducing redundant documentation and lowering compliance friction, which has historically been a concern for international investors looking to enter the Indian market. Additionally, the regulator has scrapped the requirement for FPIs to manually re-submit information during the registration continuation process. These changes are expected to streamline operations for custodians and depository participants, who will now need to update their internal systems to align with the new protocols. Notably, specific exemptions for government securities-focused investors and the existing 10-year review periodicity for certain specialized FPI categories remain unchanged.
Regulatory Scrutiny on CDSL
In a move highlighting the regulator’s focus on institutional accountability, SEBI has imposed a penalty of ₹1 crore on Central Depository Services (India) Ltd (CDSL). This action follows a comprehensive inspection of the depository's performance during the 2023-24 financial year.
The regulator’s 102-page order detailed several governance and operational concerns. Among the highlighted issues, SEBI noted that the depository failed to provide adequate justification for the rejection of pledge requests, affecting relevant market participants. The order also pointed to deficiencies in the management of Client Unpaid Securities Accounts (CUSA) and flagged insufficient safeguards against unauthorized data transmission.
Furthermore, the regulator expressed concern regarding the depository’s disaster recovery drills, stating that the company fell short of the mandated standards required for maintaining systemic resilience. This finding is significant as depositories form the backbone of the electronic securities system, and their operational integrity is critical for market safety. CDSL has been granted a 45-day window to comply with the payment directive. Failure to settle the fine within this period could lead to further recovery proceedings by the regulator. Investors often watch such events closely, as they reflect the operational oversight and compliance health of key financial infrastructure companies.