Sebi prohibits sub-contracting of core biz by intermediaries

Capital market regulator the Securities and Exchange Board of India (Sebi) today released guidelines on outsourcing by intermediaries like brokers and depository participants that prohibit sub- contracting of core business activities.

The guidelines also direct them to put in place a comprehensive policy on the outsourcing of activities.

"An intermediary seeking to outsource activities shall have in place a comprehensive policy to guide the assessment of whether and how those activities can be appropriately outsourced," the Sebi said in a circular.

The board or partners of the intermediary will have the responsibility for the outsourcing policy and overall responsibility for related activities undertaken under it, the Sebi said.

The principles for outsourcing by intermediaries have been framed based on views given by various intermediaries, stock exchanges and depositories, it added.

"The intermediaries desirous of outsourcing their activities shall not outsource their core business activities and compliance functions," the regulator said.

Such functions include activities like execution of orders and monitoring of trading activities of clients in case of stock brokers, dematerialisation of securities in case of depository participants and investment related activities in case of mutual funds and portfolio managers.

Sebi said the intermediaries shall be responsible for reporting of any suspicious transactions to Financial Intelligence Unit or any other competent authority in respect of activities carried out by the third parties.

"In view of the changing business activities and complexities of various financial products, intermediaries shall conduct a self assessment of their existing outsourcing arrangements within a time bound plan, not later than six months from the date of issuance of this circular and bring them in line with the requirements of the guidelines/ principles," it said.