SEBI Revises Principal Officer Criteria and Streamlines Merchant Banker Registration Categories

Notification F. No. SEBI/LAD-NRO/GN/2025/282, Dated: 03.12.2025

1. Overview

The Securities and Exchange Board of India (SEBI) has notified amendments to the SEBI (Merchant Bankers) Regulations, 1992, introducing changes to the definition of a principal officer and revising the categorisation framework for registration of merchant bankers.

2. Revised Definition of Principal Officer

The amended regulations now prescribe a higher professional benchmark and responsibility framework for principal officers of merchant banking entities.

2.1 Key Changes

• A principal officer must have a minimum of five years’ experience in the securities market or financial sector.
• The officer must be responsible for core decision-making relating to the merchant banker’s activities, compliance obligations, and business operations.

2.2 Regulatory Significance

The revision aims to:

• Strengthen the governance and accountability structure within merchant banking organisations
• Ensure that key regulatory, due diligence, valuation, and disclosure responsibilities are handled by professionals with adequate experience and decision-making authority
• Enhance investor protection and market integrity through experienced leadership

3. Replacement of Regulation 3 – Revised Categories for Registration

SEBI has replaced the existing Regulation 3, which deals with the categories under which merchant bankers may seek registration.

3.1 New Registration Categories

Merchant bankers can now apply for registration under only two categories:

Category I

• Can carry out all activities permitted under the merchant banking regulations
• Includes managing public issues on the main board, underwriting, advisory services, portfolio management, and other approved functions

Category II

• Can carry out all permitted activities except managing public issues on the main board
• May still undertake issue management for SME platforms, advisory mandates, due diligence, underwriting, valuations, and other permissible roles

3.2 Implications

• The earlier multi-tier or differentiated framework has now been streamlined
• Merchant bankers must clearly align their business scope with either full-scope (Category I) or restricted-scope (Category II) operations
• The change simplifies regulatory classification and ensures consistency in market supervision

4. Regulatory Intent

The amendments aim to:

• Improve standardisation, governance, and quality of merchant banking practices
• Ensure experienced stewardship over key public market activities
• Reduce ambiguity between business categories and strengthen risk and responsibility mapping
• Enhance accountability and compliance discipline in capital markets

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