SEBI explores options for merchant bankers' unregulated services
The Securities and Exchange Board of India (SEBI) is considering new options for merchant bankers to provide services that are not regulated by SEBI. Previously, SEBI suggested that these services must be separated into different businesses. Now, it is exploring ways to allow these activities with proper disclosures or through a special purpose vehicle (SPV). A source involved in the discussions mentioned that several proposals are under review. These include creating a separate segment for unregulated activities within the existing business structure, provided full disclosures are made. During a board meeting, SEBI chairman Tuhin Kanta Pandey stated that if there are safer ways to accommodate these services, they would consider them. Recently, SEBI decided to postpone its earlier requirement that merchant bankers separate unregulated businesses, such as private placements and project consultancy. This decision came after concerns that mandating such separations could create risks in the market. Industry insiders worry that the previous proposal could have created unfair competition between merchant bankers associated with banks and those that operate independently. They argue that bank-affiliated firms would have an advantage, while independent firms would face higher costs from needing to create separate entities. Current operations heavily rely on shared resources across different business areas. A merchant banker pointed out that their services are designed for long-term client relationships, and any changes in regulations could impact all parties involved. Experts, including former SEBI executive Sandeep Parekh, voiced concerns that enforcing separate units for listed and unlisted company work could disrupt operations that have been established for decades. They emphasized that such a separation is not common practice internationally. SEBI has received requests for comments on these new proposals, but had not yet responded as of the time of this report.