What Will Be the Impact of SEBI's New Monthly Custodian Fee Payment Rules?

The Securities and Exchange Board of India (SEBI) has amended the SEBI (Custodian) Regulations, 1996, to change the payment frequency of custodian registration fees from an annual basis to a monthly basis. The amendment will come into effect on 1 October 2026.

This is primarily an operational change rather than a financial one. It does not introduce a new fee or significantly increase the overall registration cost for custodians. Instead, it changes the timing of fee payments and requires custodians to submit their Assets under Custody (AUC) details monthly rather than once a year. The amendment is intended to improve regulatory oversight while making fee payments more regular and aligned with business activity.

Key Highlights of the SEBI Notification

• Issuing authority: Securities and Exchange Board of India (SEBI), Mumbai.
• Regulation amended: SEBI (Custodian) Regulations, 1996 (last amended 23 September 2025).
• Effective date: 1 October 2026 (a fixed future commencement date, unlike the mutual fund amendment, which took immediate effect).

Key changes

1. Regulation 9(d) and Regulation 26(i): The word "annual" is replaced with "monthly" wherever it appears regarding fee payment.

2. Second Schedule, Part A, clause (iii) fee amount itself:

The amendment also revises the fee structure under Part A, Clause (iii) of the Second Schedule.

Earlier Fee Structure

• Annual fee of Rs 10,00,000 (Rs 10 lakh), or 
• 0.0005% of the Assets Under Custody (AUC), 
• Whichever is higher. 

Revised Fee Structure

• Monthly fee of Rs 85,000, or 
• 0.0000416% of the monthly Assets Under Custody (AUC), 
• Whichever is higher. 

Although the payment frequency has changed, the annual financial impact remains almost the same. Paying Rs 85,000 per month amounts to approximately Rs 10.20 lakh per year, which is only marginally higher because of rounding. This indicates that SEBI has restructured the payment schedule rather than increasing the registration fee.

3. Second Schedule, Part B, clause (II) payment mechanics:

The amendment introduces a new payment mechanism for both existing and newly registered custodians.

For New Custodians (Registered on or after 1 October 2026)

• A proportionate fee will be payable for the month in which registration is granted. 
• From the following month onwards, the full monthly registration fee must be paid. 
• Every payment must be made within 15 days from the end of the relevant month. 

For Existing Custodians (Registered before 1 October 2026)

• They must pay a proportionate annual fee for the remaining period of FY 2026-27. 
• This payment must be made within 15 days from the commencement of the amendment. 
• Any annual registration fee already paid for a period extending beyond 1 October 2026 will be adjusted against the revised fee payable. 
• Starting the following month, custodians must switch to the monthly payment system.

4. Reporting requirement (sub-clause 4): Custodians must now submit their Assets under Custody (AUC) statement every month (instead of annually) along with the fee payment, in a SEBI-specified format, certified by the Functional Head of Custody Services as accurate and complete.

Why Has SEBI Introduced This Change?

SEBI has introduced this amendment to make the registration fee framework more efficient, improve regulatory reporting, and align fee payments more closely with the actual scale of custodial business.

• Aligning fee cash flows with actual business activity: Custodian AUC balances fluctuate throughout the year with market movements, fund inflows/outflows, and new client onboarding. An annual fee based on a single point-in-time AUC snapshot can be a poor proxy for the custodian's actual scale of business over the full year. Monthly fees based on monthly AUC make the fee structure more dynamically accurate.
• Improved regulatory oversight through more frequent data: Requiring a monthly AUC statement (rather than annual) gives SEBI far more granular, timely visibility into custodian balance sheets and market-wide custody trends useful for systemic risk monitoring, especially as India's AUM/AUC base has grown substantially.
• Smoothing SEBI's own fee revenue and administrative cash flow: Annual lump-sum collection creates uneven cash inflows for SEBI, monthly collection provides steadier, more predictable regulatory fee revenue.
• Reducing large one-time payment burden on custodians: Paying Rs 85,000/month (or the AUC-based equivalent) is administratively easier for many custodians than budgeting for a single Rs 10+ lakh annual outflow, improving cash flow predictability on the custodian's side too.
• Consistency with other SEBI fee-frequency reforms: SEBI has been moving multiple categories of market intermediaries toward more frequent, data-linked fee and reporting cycles as part of a broader modernization of its regulatory fee framework, improving real-time regulatory data rather than annual retrospective snapshots.

Compliance Requirements for Custodians

To ensure a smooth transition to the new fee payment framework, SEBI has prescribed separate compliance requirements for existing and newly registered custodians. In addition to changing the payment frequency, custodians will also need to adopt a monthly reporting process for their Assets under Custody (AUC).

For Existing Custodians (Registered Before 1 October 2026)

Custodians already registered before the amendment comes into effect must comply with the following requirements:

• Pay the Transition Fee: A proportionate annual registration fee for the remaining period of FY 2026-27 (1 October 2026 to 31 March 2027) must be paid within 15 days from 1 October 2026. 
• Adjust Previously Paid Fees: If an annual registration fee has already been paid for a period extending beyond 1 October 2026 the amount will be adjusted against the revised fee payable under the new framework. 
• Begin Monthly Fee Payments: From November 2026 onwards, custodians must pay the applicable monthly registration fee within 15 days after the end of each month. 
• Submit Monthly AUC Statements: Every monthly fee payment must be accompanied by an Assets under Custody (AUC) statement in the format prescribed by SEBI. The statement must also be certified by the Functional Head of Custody Services. 

For New Custodians (Registered On or After 1 October 2026)

Custodians obtaining registration on or after 1 October 2026 must comply with the following requirements:

• Pay a proportionate registration fee for the month in which registration is granted. 
• Pay the full monthly registration fee from the following month onwards within 15 days from the end of each month.
• Submit a certified monthly AUC statement along with every monthly fee payment from the beginning of their registration. 

Operational Changes Required for Compliance

To comply with the amended regulations, custodians will need to update their internal processes and systems. While the overall fee remains largely unchanged, the monthly compliance cycle requires several operational adjustments.

Operational/systems changes needed

• Finance and treasury teams must move from an annual fee-budgeting cycle to a monthly recurring payment process requiring updated internal calendars, approval workflows and possibly automated payment scheduling.
• AUC reporting systems must be capable of generating accurate monthly (not just annual) AUC figures, since the fee is based on AUC in that specific month.
• Certification workflow: The Functional Head of Custody Services must review and certify each monthly AUC statement formalizing an internal monthly sign-off process where an annual one previously sufficed.
• Fee calculation logic: Systems need to compute the higher of (Rs 85,000 flat) or (0.0000416% of that month's AUC) every month, rather than once a year.

Benefits Businesses (Custodians) Get

Although the amendment introduces more frequent reporting, it also offers several operational and financial advantages for custodians.

• Improved Cash Flow Management: Replacing a single annual payment with monthly payments spreads the financial outflow across the year. This allows custodians to manage their cash flows more efficiently and makes budgeting easier, particularly for mid-sized institutions.
• Better Alignment between Fees and Business Size: Since the AUC-based fee is calculated every month, the registration fee reflects the custodian's current level of business more accurately. Organisations with fluctuating AUC will no longer rely on a single annual snapshot that may not represent their overall operations.
• Reduced Upfront Financial Burden: Monthly payments eliminate the need to arrange a large lump-sum payment once a year. This improves working capital management and allows organisations to distribute compliance costs more evenly throughout the year.
• More Consistent Regulatory Compliance: Submitting monthly AUC statements encourages continuous compliance instead of concentrating reporting activities into a single annual exercise. This can help custodians maintain better regulatory records as well as strengthen internal compliance practices.

Who Benefits Most vs Who Faces More Burden

Since only a handful of SEBI-registered custodians operate in India (mainly banks and large financial institutions offering custody services, e.g., major banks and specialized custody arms of financial groups), this amendment is a sector-specific, relatively low-impact operational change rather than one affecting large numbers of businesses.

Impact on India's Economy

Although the amendment affects only a small group of SEBI-registered custodians, it strengthens regulatory oversight and improves the efficiency of the compliance framework without creating any significant economic impact.

Positive Impact

• Better Regulatory Oversight: Monthly AUC reporting gives SEBI access to more timely and accurate data, helping it monitor custody-related risks more effectively and strengthen oversight of India's growing capital markets.
• Improved Cash Flow Planning: Monthly fee payments replace a single annual payment, making it easier for custodians to manage cash flows and budget compliance expenses throughout the year.
• Supports Regulatory Modernisation: The amendment aligns with SEBI's broader objective of introducing more frequent reporting and improving the efficiency of regulatory supervision across market intermediaries.
• Limited Economic Impact: Since the amendment applies only to a limited number of custodians, it is unlikely to have any significant impact on India's overall economy or financial markets.

Impact on India and Other Countries

• Limited to India: The amendment applies only to SEBI-registered custodians operating in India and has no direct impact on foreign regulatory frameworks. 
• Global Custodians in India: International custody service providers operating in India must update their Indian compliance and reporting processes, while their overseas operations remain unaffected. 
• No Cross-Border Market Impact: The amendment is an administrative compliance reform and is not expected to influence global financial markets or international regulations.

Is This the Right Decision, or an Additional Burden?

Overall, the amendment is a balanced regulatory reform. While it introduces more frequent reporting requirements, it does not significantly increase the financial burden on custodians. Instead, it modernises the fee payment framework, and maintains regulatory oversight.

Why This Is a Positive Change

• No significant increase in registration fees: Although the payment frequency changes, the annual fee remains almost the same. This confirms that the amendment is aimed at improving the payment structure rather than increasing costs. 
• Better alignment with business activity: Monthly AUC-based fee calculations reflect the custodian's actual scale of operations more accurately than a single annual assessment. 
• Well-planned transition: SEBI has provided a clear implementation timeline, allowing custodians sufficient time to update their systems, processes, and compliance workflows before the amendment takes effect. 
• Improved regulatory efficiency: Monthly reporting enables SEBI to monitor market developments more effectively and respond to potential risks in a timely manner. 

Additional Compliance Requirements

• More frequent reporting: Custodians must now submit 12 AUC statements each year instead of one annual statement.
• System and process upgrades: Organisations may need to update their finance, reporting, and internal approval systems to support monthly fee calculations, payments, and certifications.

Overall Assessment

The amendment is more of an operational change than a significant compliance burden. While custodians will have to move to monthly fee payments and reporting, the overall cost remains almost the same, making the transition practical and manageable.

How This Improves Quality, Transparency, and Market Conditions

The amendment strengthens regulatory transparency by introducing more frequent reporting, improving data quality and supporting more effective supervision of custodians.

• Stronger Regulatory Oversight

Monthly AUC reporting provides SEBI with more timely and reliable information, enabling better supervision of custodians and improving its ability to identify potential risks within the financial system.

• Improved Data Accuracy

The requirement for certification by the Functional Head of Custody Services strengthens accountability and encourages organisations to maintain accurate and up-to-date custody records.

• Better Protection of the Financial System

Although custodians do not directly deal with retail investors, they play a critical role in safeguarding assets held by mutual funds, pension funds, insurance companies, and foreign portfolio investors. Better regulatory visibility over custodians indirectly supports the safety and integrity of India's capital markets.

• No Environmental Impact

The amendment relates solely to the payment of registration fees and reporting requirements. It does not have any direct environmental or sustainability implications.

Implementation Timeline

The following timeline highlights the key compliance deadlines under the SEBI (Custodian) (Amendment) Regulations 2026, helping stewards prepare for a smooth transition to the new framework.

Corpseed Offering: Ensuring Seamless Compliance with the New Amendment

Since SEBI-registered custodians are a small, concentrated group of large financial institutions, Corpseed's opportunity here is narrower but high-value:

1. Transition Compliance Advisory

• Help custodians calculate the correct proportionate annual fee for the FY 2026-27 transition period, including adjustment credits for fees already paid, ensuring accurate payment within the 15-day window after 1 October 2026.

2. Monthly Fee and AUC Reporting Process Design

• Design and implement a recurring monthly compliance calendar/process for fee calculation, payment and AUC statement submission, replacing the old annual cycle.

3. Internal Certification Workflow Support

• Help custodians formalize the internal sign-off process by the Functional Head of Custody Services, ensuring monthly AUC statements are accurate, complete and audit-ready.

4. SEBI Format Compliance

• Track and advise on the SEBI-specified format for monthly AUC statements once formally circulated, ensuring custodians' reporting templates stay aligned with regulatory expectations.

5. Regulatory Monitoring Subscription

• Given SEBI's pattern of issuing multiple related amendments together (custodian fees, mutual fund borrowing, on the same date), offer custodians and AMCs a consolidated regulatory tracking service covering all SEBI notifications affecting their specific business line.

6. Training for Finance and Compliance Teams

• Conduct focused sessions for custodian finance and compliance teams on the new fee mechanics, transition-period calculations, and monthly reporting obligations ahead of the 1 October 2026 effective date.