A series of recent policy reversals by the Securities and Exchange Board of India (Sebi) has fuelled concerns of regulatory uncertainty and whether a rule change last year has led to regulations being framed without adequate consultation with stakeholders.
A Mint analysis of Sebi circulars and consultation papers found at least four instances between January and April this year where the market regulator reversed or deferred a policy decision after industry feedback. There was just one such instance in the nine months between April and December last year. (The analysis was limited to regulations changed within 14 months of being introduced.)
Of the five instances, two regulations were implemented without prior consultation and two with such interactions with stakeholders. Mint could not determine the consultation process of one of the reversed regulations.
Sebi’s rule-making in this regard is governed by the Sebi (Procedure for making, amending and reviewing of Regulations) Regulations, 2025 which was notified in February 2025. Under this framework, the regulator must publish draft proposals along with their rationale, legal backing and objectives, and invite public comments for at least 21 days. It must also disclose reasons for rejecting feedback before placing the proposal before its board for approval.
However, a draft proposal can be avoided in situations where Sebi's board of members thinks that public consultation would “defeat the purpose of the proposed regulation” in the interest of investors or the development of the securities markets. It has to present the reasons before the board.
“There are very few instances of Sebi issuing a regulation without consultation. The provision to allow the regulator to make regulations without industry feedback does not need to be exercised. Consultation should never be done away with,” said Subhash Chandra Garg, former finance secretary and an ex-Sebi board member.
Such policy reversals did not happen prior to fiscal 2026, a second former Sebi board member said but this could not be independently confirmed by Mint.
Queries emailed to Sebi on 1 May seeking comment for this story were not responded to.
U-turns on policy decisions
This February, Sebi discontinued solution-oriented mutual fund schemes such as children’s and retirement funds. The announcement came without formal consultation with the industry, mutual fund executives told Mint. Just seven months earlier, in a consultation paper on categorization of mutual fund schemes, it had recommended expanding the types of schemes under the category to offer different mixes of asset allocation.
Thousands of people were invested in retirement and children funds, said a senior asset management company (AMC) executive, asking to stay unidentified. "Investors, who have been putting their money into it for several years, cannot be asked to just take it all out and put it elsewhere.”
On 20 March, Sebi took onboard the feedback and updated its master circular allowing AMCs to continue solution-oriented schemes, with restrictions on launching certain new products, effectively diluting the earlier order.
A similar pattern played out in rules governing intraday borrowing by mutual funds. On 13 March, Sebi said such borrowing, which is widely used by liquid and overnight schemes to manage timing mismatches, would be allowed only for redemption payouts. The move diverged from industry practice, where funds also use these facilities to buy securities.
There was no consultation paper before the change.
Following representations from industry lobby the Association of Mutual Funds in India (Amfi) on operational challenges, Sebi deferred the implementation on 25 March. The regulator said the delay was to address concerns raised by AMCs.
“Such instances create compliance problems for intermediaries and may also have direct bearings on investment decisions of investors,” said Sidharth Kumar, senior associate at BTG Advaya and a former Sebi officer. “If the regulator doesn't keep the same position for at least one financial year, it makes regulations unpredictable.”
He added that earlier there were 30 days to respond to a consultation paper and press briefings and seminars were held. "I don’t come across feedback collection mechanisms anymore,” he said.
Flexibility may be healthy
Nomination rules for demat accounts and mutual fund folios have followed a similar trajectory. In January 2025, Sebi introduced new rules for nominees including expanding the maximum number of nominees to 10. It also recommended stricter processes for opting out of nomination, including OTP verification and submission of declarations through physical forms or video recording.
But by March 2026, the regulator was forced to revisit these provisions after the industry flagged high compliance costs, operational complexity, and legal risks.
Enough consideration should be given prior to making a regulation/rule, said Tomu Francis, partner at Khaitan & Co. "The better thing to do here is to interact with stakeholders and also do a cost benefit analysis before finalizing any regulation.”
He added that rolling back decisions could also indicate that Sebi is willing to change regulations that affect the market after feedback, taking a more pragmatic view.
“There is often a disconnect between a policy’s intent on paper and its practical execution by market participants. While Sebi is proactive in its consultation, some challenges only surface once the rules meet the real-world plumbing of the markets,” said Abhiraj Arora, partner at Saraf and Partners and a former Sebi officer.
Arora added that a sandbox or pilot-testing mechanism could help resolve implementation hurdles. Sandbox, borrowed from the software industry, here refers to isolated, ring-fenced testing of a new regulation.
The proposed Securities Markets Code, tabled in the Lok Sabha in December 2025, could help address these issues. The bill provides for regulatory sandboxes and mandates periodic review of regulations, along with periodic impact assessments to ensure rules remain relevant.
In a statement after this story was published, Amfi stressed on “regulator flexibility” in Sebi's approach.
“On recent issues, extensive consultation between the regulator and the industry had happened before roll-out and any subsequent regulatory changes reflect operational needs,” it noted. “This inherent regulatory flexibility strengthens the scope of ongoing dialogue, allowing the ecosystem to effectively respond to emerging challenges faced by the industry.”
(This story was updated with Amfi's statement.)