When the Gatekeeper Fails: SEBI Settles with JP Morgan Chase Bank for Rs. 34.42 Lakhs over FPI Compliance Lapses
Introduction
On March 20, 2026, the Securities and Exchange Board of India (“SEBI”) passed Settlement Order No. SO/AS/PSD/2025-26/8617 (the “Order”) in the matter of JP Morgan Chase Bank N.A. (“JP Morgan” or the “Applicant”), a designated depository participant (“DDP”) and custodian bank for foreign portfolio investors (“FPIs”) registered under Indian securities law. The settlement, arrived at on a neither-admit-nor-deny basis and for a consideration of Rs. 34,42,500/-, resolves enforcement proceedings that SEBI could have initiated for three separate categories of compliance failure by JP Morgan in its capacity as a DDP.
The Order is significant not merely for its quantum — which is modest by institutional standards — but for the clarity it provides on SEBI’s expectations of DDPs in three respects: (i) verification of regulatory status before granting FPI category licences; (ii) the obligation to confirm that status again at the point of re-categorisation; and (iii) the speed with which a DDP must act following notification of a Type I material change such as an entity merger. For custodian banks, global custodians, and prime brokers operating as DDPs in India, the Order is a timely reminder that these obligations are not merely procedural — SEBI is prepared to treat failures as enforcement-worthy events.
Violations at a Glance
| Violation | Provision Violated | Core Failure |
| Category II licence granted to 4 UK FPIs not appearing in UK-FCA register | Regulation 7(1) r/w Regulation 5(b), FPI Regulations 2014; Regulation 45(2), FPI Regulations 2019 | Failure to verify regulated-entity status before grant of Category II licence |
| Re-categorisation to Category I without UK-FCA verification | Regulation 45(2)(b) r/w Regulation 5(a), FPI Regulations 2019; Para 2(v), Part A, Operational Guidelines dated 05.11.2019 | Categorisation decision made without confirming regulatory status of FPIs with UK-FCA |
| FPI-Care Super merger notified; 38-day delay in directing fresh registration; 64 purchase transactions permitted during the gap | Regulation 31(1)(a), FPI Regulations 2019 r/w Clause 14(ii), Part A, Master Circular dated 30.05.2024 (as amended by Circular SEBI/HO/AFD/AFD-POD-2/P/CIR/2024/76 dated 05.06.2024) | Failure to promptly reassess FPI eligibility following Type I material change (entity merger) |
Provisions of Law
The following are the relevant regulatory provisions, reproduced verbatim, for the violation of which SEBI initiated settlement proceedings against JP Morgan:
A. Regulation 7(1) read with Regulation 5(b) — FPI Regulations, 2014
| Regulation 7(1), FPI Regulations 2014
A foreign portfolio investor shall seek registration in one of the following categories, namely:— (a) Category I — foreign portfolio investors; (b) Category II — foreign portfolio investors; and (c) Category III — foreign portfolio investors. |
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| Regulation 5(b), FPI Regulations 2014
An applicant seeking registration as a Category II foreign portfolio investor shall be — (b) an appropriately regulated broad based fund, a broad based fund whose investment manager is appropriately regulated, a university fund, an endowment fund and a pension fund; or Explanation: For the purposes of this regulation, ‘appropriately regulated’ means regulated or supervised by the securities market regulator of the concerned jurisdiction and appearing in the register of regulated entities maintained by such regulator. |
B. Regulation 45(2)(b) read with Regulation 5(a) — FPI Regulations, 2019 and Paragraph 2(v), Part A, Operational Guidelines for FPIs & DDPs dated November 05, 2019
| Regulation 45(2)(b), FPI Regulations 2019
Where the FPI registered under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014, on the date of commencement of these regulations— (b) is desirous of being re-categorised as Category I foreign portfolio investor, it may seek re-categorisation as Category I foreign portfolio investor from the designated depository participant, subject to fulfilment of eligibility criteria specified in these regulations. |
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| Regulation 5(a), FPI Regulations 2019 (Eligibility for Category I)
The following entities shall be eligible for registration as a Category I foreign portfolio investor, subject to such terms and conditions as may be specified by the Board from time to time, namely— (a) Government and Government related investors such as central banks, sovereign wealth funds, international or multilateral organisations or agencies including entities controlled or at least 75% directly or indirectly owned by the government(s) or central bank(s); or (b) Pension funds and university funds; or (c) Appropriately regulated entities such as insurance or reinsurance entities, banks, asset management companies, investment managers, investment advisors, portfolio managers, broker dealers and swap dealers; or (d) Entities from the Financial Action Task Force (FATF) member countries which are — (i) appropriately regulated funds; or (ii) unregulated funds whose investment manager is appropriately regulated. |
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| Para 2(v), Part A, Operational Guidelines for FPIs & DDPs (November 05, 2019)
DDPs shall ensure that the FPI applicants fulfill the eligibility criteria specified under Regulation 5 of the FPI Regulations, 2019. The DDP shall verify whether the FPI is appearing in the register of regulated entities maintained by the regulator of its home jurisdiction before granting registration or re-categorisation. |
C. Regulation 31(1)(a) — FPI Regulations, 2019 read with Clause 14(ii), Part A, Master Circular dated May 30, 2024 (as amended by SEBI Circular SEBI/HO/AFD/AFD-POD-2/P/CIR/2024/76 dated June 05, 2024)
| Regulation 31(1)(a), FPI Regulations 2019
31. Change in material information.— (1) An FPI shall forthwith intimate the designated depository participant, in case of any change in— (a) material information related to the foreign portfolio investor including change in the jurisdiction of registration or incorporation, change in the constitution or ownership, or any suspension, cancellation, revocation of regulatory license or registration, including regulatory action, within 7 calendar days from the date of such change or such other period as may be specified by the Board. |
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| Clause 14(ii), Part A, Master Circular for FPIs dated May 30, 2024 (as amended)
Type I material change: A Type I material change refers to a material change that requires the FPI to seek fresh registration. Such changes include, inter alia, merger of the FPI with another entity or acquisition of an FPI by another entity. Upon intimation of a Type I material change by an FPI, the DDP shall forthwith — (ii) direct the FPI to seek fresh registration within a reasonable time and, pending fresh registration, block the FPI account for fresh purchases. The DDP shall ensure that the FPI account is blocked for fresh purchases within 30 days of intimation of such material change. |
Way Forward
This settlement, though procedurally straightforward, carries disproportionate significance for the DDP and custodian community in India. We offer the following analysis:
What This Order Confirms
- Custodian Accountability. DDP liability is real and operational. The Order dispels any lingering doubt that DDPs are merely administrative conduits. SEBI’s willingness to pursue enforcement against a systemically significant global custodian for what might appear to be procedural oversights confirms that the DDP function carries substantive regulatory accountability.
- Register Verification. The UK-FCA register check is a hard obligation, not a best-efforts standard. Both at the time of initial Category II grant and at the point of re-categorisation to Category I, DDPs must affirmatively verify that the FPI appears in the register of regulated entities of its home regulator. Reliance on FPI self-certification, historical regulatory correspondence, or the absence of a deregistration notice will not suffice.
- Material Change Timelines. The 30-day outer limit for blocking accounts following a Type I material change is a ceiling, not a target. The Master Circular’s 30-day outer limit for blocking accounts was not treated by SEBI as an absolute safe harbour. JP Morgan notified the FPI of the fresh registration requirement 35 days after receiving intimation (November 1 to December 6), and the block was placed a further three days later. In SEBI’s view, both the notification and the block came late. DDPs should treat the 30-day period as an outer limit within which action should be completed as early as operationally possible.
Open Questions and Residual Risks
- The Order does not quantify how it arrived at Rs. 34.42 lakhs. Unlike adjudication orders which must articulate the basis for penalty, settlement amounts are negotiated and the settlement terms do not disclose the methodology. It is therefore not possible to reverse-engineer a “cost per violation” or assess proportionality with precision. DDPs should not treat this amount as a ceiling for future cases.
- 64 purchase transactions during the gap period are noted but not separately penalised. The Order records that the FPI executed 64 purchase transactions between November 1 and December 9, 2024 — while the block had not been placed. SEBI has not, in this Order, pursued any action in respect of those underlying transactions. Whether SEBI will separately examine the validity of those trades, or whether they are treated as settled by virtue of this Order, remains unclear.
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This update is intended for general informational purposes and does not constitute legal advice. For more information, please reach out to Shubham Sharma at 2636@cnlu.ac.in.
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