Abstract
In recent years, the role of Authorised Persons (“AP”), who are individuals appointed by stock brokers to source and service clients has expanded in India’s broking industry. However, several cases have shown unchecked activities by APs that threatened market integrity, besides causing reputational damage to brokers due to the immunity from liability enjoyed by APs. In this backdrop, a recent ruling of the Securities Exchange Board of India (“SEBI”) underscores the watchdog’s fresh concern in sharing compliance functions by the broker with such authorised dealers. The negligence of APs cannot while decried, be a reason for casting aspersions on brokers on the grounds that they are liable for the formers’ actions, as has been the case till date.
The piece proposes a reconsideration of the extant legal literature that defines the contours of an AP’s segmental purpose. It pushes for shifting the scales to hold APs accountable for pursuing illegitimate interests, rather than censure their actions against the SEBI’s reservations on broker-AP reliance. This merits the adoption of suggested measures for course correction.
Regulatory Roots- APs and their systemic presence
An authorised person is engaged mainly by stock brokers to forge ties with semi-urban and rural areas, and render services to the uninitiated, coupled with schemes oriented to the nature of investment. They bridge the gap with investors for their robust participation and confidence in the markets. APs are accountable to the (principal) broker, with the latter’s actions governed by the SEBI (Stock Broker) regulations, 2026 (“regulations”). Regulation 23 of the regulations specifies the obligations of a broker, which includes the delineation of responsibilities of APs as well. Though they are not registered with the National Stock Exchange (NSE), the structure of an AP and incidental provisions are prescribed by the NSE which permits a flexible constitution, mandates periodic inspections, and presents an eligibility criterion for worthy reputation and infrastructure to discharge the obligations vested. This mirrors the SEBI’s decade old circular that includes a list of conditions, related to appointment, withdrawal of approvals, and obligations of the broker. Apart from the requirement of a written agreement between the parties, a trading member is liable for all actions of the AP, and all the latter’s actions shall be deemed to be those of the former without exception.
Carrying the Can – Piercing the veil of vicarious liability
The circular stresses on the liability of brokers, holding every act of omission or commission of the AP as that of the broker. This responsibility has proved to be a bane, considering the shadow operations of APs and associated entities. In the matters of Reliance Securities (2024) and 5 Paisa Capital (2024), SEBI proceeded against the brokers for inadequate supervision and control over APs, completely disregarding the wrongs committed by them. In the latter case, the board rejected the argument of the Broker that APs cannot be monitored every minute, pursuant to providing a checklist to be adhered to. The task of supervision by brokers becomes all the more cumbersome, when undisclosed activities and lack of clear communication are classified as a broker’s responsibility. There is also the risk of non-declaration of bank accounts in which agents keep client’s funds directly without upstreaming them and carry out prohibitive manoeuvres, which are untraceable especially when a broker employs multiple APs.
Ergo, the veil must be pierced. This is possible only when the focus is on alleviating the broker’s predicament of persistent yet, unviable supervision of APs. However, the SEBI’s recent approach shows otherwise.
The Goodwill Matter- SEBI’s pedantic approach to AP risks
In the matter of Goodwill Wealth Management Pvt. Ltd (2026), a broker had shared its complaint redressal mechanism and associated functions with an AP, based on an undertaking submitted to the NSE. The Board labelled it as a lapse of duty by stamping a grievance redressal function as a core compliance measure, that is to be performed solely by the principal broker. Albeit, the undertaking conveyed that core functions have been “shared” with reasonable restraint, the SEBI alluded to a “delegation” of core functions and directly penalized the broker. The reason was grounded in clause 86.5.1 of the Master Circular for Stock Brokers (2025), which proscribes the “outsourcing” of “core” business activities and compliance functions.
It bears note, that the execution of orders and monitoring of trading activities of clients are positioned as core services of brokers under the clause. The problem here is twofold. Say, a broker has a centralized surveillance system that flags any anomaly in clients’ account as part of its central business activity. The AP is directed to dignify their concerns with lucid responses. From one angle, the AP undertakes a thematic inspection by monitoring the client’s trades, that includes collecting and uploading confirmation evidence on the broker’s system and from the other, the agency is questioned basis not the circular’s mandate but, the SEBI’s extended interpretation of it.
Another concern is the interpretation of core compliance. Institutionalized Brokers have a tendency to selectively delegate certain tasks to APs to work in tandem and facilitate ease of commerce. This yields efficient time management for both parties. For perspective, Reg 21 of the regulations mandates stock brokers to develop systems for surveillance of trading activities. What may seem as a cohesive work structure, may be surprisingly considered as an infraction of a settled legal principle.
Recommendations- A Comparative Analysis and a Criteria
The number of APs has outnumbered brokers in recent years. This trend may be affected by the SEBI’s consultation paper which seeks to reduce the net worth requirements for brokers who manage a higher number of clients directly, while enhancing the requirement for lesser number of clients who are indirectly managed by APs. It may result in a calibrated filtering of inefficient agents and switchover of AP-managed investors to Brokers, pursuant to sufficient handholding given to clients by “former” agents. However, those who intend to manage clients through existing dealers, must take more precaution by advanced supervision and periodic assessments, that needlessly creates hassles in their day-to-day business. The SEBI should correct its lens by allowing them to tend to their core competencies. A definitive framework can address the impasse.
Firstly, authorised persons must be mandated to clear the required exams conducted by the National Institute of Security Markets (NISM), with a period of validity. The US Financial Industry Regulatory Authority (FINRA) mandates in rule 1210 that every person before registration as a representative shall pass the Securities Industry Essentials (SIE) and an appropriate representative qualification examination. A module outline for an exam can be derived from Part 4 of the notice on competency requirements for appointed representatives issued by the Monetary Authority of Singapore (MAS), which has issued long term prohibition orders against APs for fraudulent conduct and unauthorised trades. This acts as a barrier to non-professionals, and increases attention of the AP to consequences of any pursuit for profit.
Secondly, a progressive code of conduct (with a fit and proper person criteria) for APs must be designed by a joint committee of the SEBI and the Exchanges (NSE and BSE). The code must transcend the surface level requirements in the SEBI’s initial circular, by clearly specifying the periods of inspection of terminals and branches, scope of permitted technologies, annual fit-and-proper review, documented supervision and escalation and termination triggers. Rule 3110 of the US FINRA is a benchmark. The code must provide for broker-AP collaboration, with expressive safeguards against probable overreach. In this context, the immunity of an agent may be pierced by a segregation in transactions/activities and a specific category must be identified, to determine the AP’s sole culpability. Principal Brokers must be protected from AP’s actions that fall outside the scope of appointment.
Thirdly, an AP shall be required to submit a separate quarterly report to the SEBI, though the circular does not have the requirement. It must display trades that breach a particular value, with an attached list of chores performed. The two may be tallied for an expedited and thorough check to flag early hazards. In the process, applications that operate on artificial intelligence (AI) can prove to be of good assistance to the Board. This can contribute to a healthy relationship between the regulator and the regulated.
Forward Outlook
The treatment of AP delinquency as a third-party contravention and holding stock brokers as scapegoats defeats their purpose in scaling the trade trajectory of investors and developing an interpersonal relationship for retention. In the Goodwill matter, the SEBI invoked the concerned clause of the master circular, even when it was clarified that no autonomy in decision-making was granted to the AP. Such an enforcement deepens the existing schism between the two, and the perception that brokers are an alter ego of APs. Adopting the measures recommended can bring a dire sense of care and awareness to authorised persons, to perform by the authority so entrusted.
(This post has been authored by Darshan Rao, a 4th year law student at Ramaiah College of Law, Bengaluru)
CITE AS: Darshan Rao, ‘Caring Those, who Share– The Need for Structured Oversight of Authorised Persons’ (The Contemporary Law Forum, 09 June 2026) <https://tclf.in/2026/06/09/caring-those-who-share-the-need-for-structured-oversight-of-authorised-persons/> date of access.