Securities and Exchange Board of India (“SEBI”) has prepared a Discussion Paper on Outsourcing of Activities Related to the Intermediation Service (“Discussion Paper”) since outsourcing by intermediaries is an area which is not very broadly covered by various SEBI Regulations made for intermediaries.

Outsourcing of activities is done by intermediaries in order to perform activities associated with intermediary services. The third party may be used to perform all the activities associated with intermediation services which would involve legal and regulatory compliances as well as risk management. In the present context, outsourcing has become increasing complex. In many jurisdictions, the security market intermediaries are practicing outsourcing to reduce costs, and for strategic reasons. However since the third party may not be subject to regular scrutiny, outsourcing raises variety of concerns for the regulator as well as the intermediary.