SEBI Shifts Custodians to Monthly Fee Regime Effective October 1, 2026

Kaustav Chowdhury

Aug 17

5 min read

Introduction

The Securities and Exchange Board of India ("SEBI") has notified the SEBI (Custodian) (Amendment) Regulations, 2026 (the "Amendment") vide Notification No. SEBI/LAD-NRO/GN/2026/308 dated July 3, 2026. The Amendment introduces a fundamental change to the fee payment framework governing custodians of securities in India by replacing the long-standing annual registration fee with a monthly payment obligation. The revised regime takes effect on October 1, 2026, and requires custodians to pay Rs 85,000 or 0.0000416% of assets under custody ("AUC"), whichever is higher, within 15 days of each month-end, accompanied by a certified statement of assets under custody.

This regulatory shift is significant for all SEBI-registered custodians and their institutional clients, including foreign portfolio investors ("FPIs"), mutual funds, alternative investment funds ("AIFs"), and portfolio managers. The move toward monthly fee payments and certified asset reporting signals SEBI's intent to strengthen real-time regulatory oversight of custodian operations and align fee obligations more closely with actual asset positions.

Background: The Existing Fee Framework Under the Custodian Regulations, 1996

The SEBI (Custodian of Securities) Regulations, 1996 (the "Principal Regulations") have governed the registration, obligations, and operational standards for custodians of securities in India for nearly three decades. Custodians serve as SEBI-registered intermediaries entrusted with holding securities and assets of institutional clients in a fiduciary capacity, executing settlement instructions, and facilitating compliance with market regulations.

Under the pre-amendment regime, Regulation 14 of the Principal Regulations prescribed an annual registration fee. A custodian was required to pay either Rs 10,00,000 (Rs 10 lakh) or 0.0005% of the AUC, whichever was higher, on an annual basis. This fee was payable with reference to each financial year, within one month of the completion of that financial year. For custodians granted registration mid-year, a proportionate annual fee was payable for the year in which registration was granted, followed by the full annual fee for each subsequent financial year.

While this annual framework served the market for an extended period, it had an inherent limitation: the fee was calculated once a year, which meant that significant fluctuations in a custodian's AUC during the course of the year were not reflected in its fee obligations until the next annual payment cycle. The annual reporting cadence also limited SEBI's ability to monitor asset positions in near-real time. The Amendment addresses both of these gaps.

Key Changes Introduced by the Amendment

1. Shift from Annual to Monthly Fee Payments

The most consequential change is the substitution of the annual fee with a monthly payment obligation. The Amendment revises the relevant provisions of the Principal Regulations to require custodians to pay a monthly fee of Rs 85,000 or 0.0000416% of AUC, whichever is higher. This monthly rate, when annualised, approximates the previous annual threshold (Rs 85,000 multiplied by 12 equals Rs 10,20,000, which is marginally higher than the earlier Rs 10,00,000 annual floor). The percentage-based component similarly translates to roughly 0.0005% on an annual basis (0.0000416% multiplied by 12 equals approximately 0.0004992%).

The practical effect is that the fee quantum remains broadly comparable in annual terms, but the payment frequency increases twelve-fold. This is not merely an administrative change; it fundamentally alters the cash flow dynamics for custodians and introduces a more granular fee-to-asset alignment.

2. Payment Timeline: 15 Days from Month-End

Under the amended framework, the monthly fee must be paid within 15 days of the close of each month. This is a significantly tighter timeline compared to the earlier annual regime, which allowed payment within one month of the completion of the financial year. Custodians will need to ensure that their internal systems are equipped to compute the applicable fee, generate the required certified asset statement, and process payment on a monthly cadence.

3. Mandatory Certified Asset Statement

Each monthly payment must be accompanied by a certified statement of AUC. This requirement transforms the fee payment process from a standalone financial obligation into a combined financial-and-disclosure exercise. The certified statement serves a dual purpose: it substantiates the fee computation (since the percentage-based component requires an accurate AUC figure) and provides SEBI with regular, verified data on the custodian's asset position. Previously, there was no comparable requirement to submit certified asset data alongside annual fee payments.

4. Proportionate Fees for New Registrations

Custodians registered on or after October 1, 2026 must pay a proportionate monthly fee for the month in which registration is granted, followed by the full monthly fee from the subsequent month onward. This mirrors the proportionate fee principle that existed under the annual regime but adapts it to the monthly payment cycle.

5. Effective Date: October 1, 2026

The Amendment comes into force on October 1, 2026, giving custodians approximately three months from the date of the notification (July 3, 2026) to implement the necessary systems, processes, and internal controls for monthly fee computation and payment.

Practical Implications for Custodians and Market Participants

Compliance and Systems Upgrades

Custodians will need to review and, in many cases, upgrade their internal compliance infrastructure. The shift from annual to monthly payments requires more frequent AUC computations, faster reconciliation processes, and robust systems for generating certified asset statements on a 15-day deadline. Custodians that currently rely on year-end processes to compute and pay their fees will need to invest in automation and streamlined reporting.

Cash Flow Management

Although the total annual fee burden remains broadly similar, the switch to monthly payments may require adjustments to treasury and cash flow planning. Custodians that previously allocated a lump sum for annual fee payment will now need to manage twelve smaller outflows, each tied to a specific month-end cycle. For smaller custodians, this increased payment frequency could introduce operational complexity.

Enhanced Regulatory Oversight

From SEBI's perspective, the monthly certified asset statements will provide a more current and accurate picture of custodian asset positions throughout the year. This enhanced data flow supports SEBI's broader regulatory objectives, including risk monitoring, systemic risk assessment, and investor protection. It also aligns with SEBI's recent trend of strengthening intermediary governance, including the September 2025 increase in the minimum net worth requirement for custodians from Rs 50 crore to Rs 75 crore.

Impact on Institutional Clients

While the Amendment directly targets custodians, its effects may ripple through to their institutional client base, including FPIs, mutual funds, and AIFs. If custodians pass through any incremental compliance costs to clients via revised fee schedules, institutional investors may see marginal adjustments in custody charges. Additionally, the improved regulatory oversight that accompanies monthly reporting should, in principle, enhance investor confidence in the custodial infrastructure.

Broader Regulatory Context

The Amendment should be viewed in the context of SEBI's ongoing programme to modernise and tighten intermediary regulation. Over the past year, SEBI has introduced several measures aimed at strengthening the custodian framework. These include the increase in minimum net worth requirements (from Rs 50 crore to Rs 75 crore, effective September 2025) and the requirement for custodians to establish board-level governance committees, including audit, nomination and remuneration, and risk management committees. Bank custodians may rely on existing bank-wide governance structures, but non-bank custodians must establish these independently.

The shift to monthly fee payments is consistent with SEBI's approach to other intermediary categories, where the regulator has progressively moved toward more frequent reporting and fee payment cycles. This trend reflects a broader global movement in securities regulation toward real-time or near-real-time supervisory frameworks.

Conclusion

The SEBI (Custodian) (Amendment) Regulations, 2026 represent a significant operational shift for custodians of securities in India. By replacing the annual fee with a monthly payment obligation accompanied by certified asset statements, SEBI is introducing greater transparency, more frequent regulatory touchpoints, and a fee structure that tracks more closely with actual asset positions. Custodians should use the transition period before October 1, 2026 to review their compliance systems, update their payment processes, and prepare their teams for the new monthly cadence. For institutional clients relying on custodial services, the enhanced regulatory oversight should serve as a positive signal of improved market infrastructure governance.

For further reading on recent SEBI regulatory developments, see our articles on SEBI Notifies FVCI Amendment Regulations 2026, SEBI Mandates BRSR Value Chain Reporting from FY 2026-27, and SEBI AIF (Second Amendment) Regulations 2026.