Financial Regulatory Quarterly Milestones (January-March 2026)

On 14 January 2026, SEBI replaced the earlier mutual funds (MF) regulations with new regulations that became effective from 1 April 2026, introducing key changes for asset management companies (AMC), sponsors and trustees.

• Revisions to the expense framework: The new regulations have revised the expense framework by (a) removing the ability to charge an additional expense of five bps for schemes where exit load is applicable/levied; and (b) excluding all statutory levies from expense ratio limits. This is aimed at enhancing transparency and investor protection by eliminating additional expense headroom linked to exit loads. AMCs should accordingly revisit their fee structures and cost disclosures.
• Enhanced governance and independence standards: The new regulations expand the definition of “associate” to include relationships involving pooled investment vehicles, including private equity funds acting as sponsors. Under the old regulations, independent directors on the boards of AMCs and trustees were required not to be “associated in any manner” with the sponsor. Given the lack of guidance on the scope of the phrase, the new regulations have clarified that the test for independent directors is limited to not being an “associate” of the sponsor.
• Vicarious liability of AMCs: An AMC’s vicarious liability for acts of its employees and agents is now limited to only those acts or omissions of negligence, breach of duty, or non-compliance with the law that occur while discharging the functions prescribed in the new regulations. This provides clarity and aligns the allocation of liability risk with the scope of functions being performed by the employees.

The MF regulations of 2026 reflect SEBI’s move towards more transparent and stricter governance. Market participants must accordingly reassess their compliance processes.

On 7 January 2026, the IFSCA amended the IFSCA (Capital Market Intermediaries) Regulations, 2025 (CMI Regulations), to provide simplified entry, enable intermediaries to undertake multiple services under a unified framework, and strengthened governance capital adequacy norms within the IFSC ecosystem. The key changes for intermediaries operating in IFSCs include:

• Single registration for multiple activities: Intermediaries can now obtain a unified registration to undertake multiple capital market activities, replacing the earlier requirement for separate registrations.
• Governance flexibility: Earlier, only broker dealers, clearing members and depository participants undertaking multiple activities could appoint a common Principal Officer for such activities. This flexibility has now been extended to investment advisors, research entities, custodians and registered distributors as well. However, entities undertaking distribution business activities are still required to designate a separate official as the vertical head for such activities.
• Revised capital requirements for custodians: A minimum net worth of USD 1 million has been prescribed for custodians, with existing custodians required to comply by 30 June 2026. This amendment supersedes the IFSCA circular dated 24 February 2021, consolidating the applicable framework within the CMI Regulations.