SEBI has proposed a 50% hike in the minimum vault manager net worth, raising the threshold from Rs 50 crore to Rs 75 crore. The proposed regulatory expansion aims to bring physical assets backing exchange-traded funds and derivatives under a unified oversight mechanism, replacing existing commercial contractual arrangements to mitigate systemic risks and standardise investor protection across the bullion market.

Key Highlights

• SEBI proposes raising vault manager minimum net worth by 50%, from Rs 50 crore to Rs 75 crore.
• New framework extends oversight to physical gold and silver backing ETFs and bullion derivatives, effective 30 days post-notification.

The financial adjustment forms part of a comprehensive consultation paper released on Tuesday, August 11, outlining plans to expand the scope of the SEBI (Vault Managers) Regulations, 2021. The regulator has invited public comments on the consolidated proposals, with a submission deadline set for September 1, 2026.

Objective: A Harmonised Vaulting Framework Across Bullion Instruments

The primary objective of the regulatory overhaul is to establish a uniform vaulting framework across all financial instruments related to precious metals specified by the market regulator. Under the current system, the 2021 regulations strictly govern vault managers handling physical gold underlying Electronic Gold Receipts and Gold ETFs traded on recognised stock exchanges.

The new proposal seeks to extend this regulatory oversight to encompass physical gold, silver and other precious metals backing Gold ETFs, Silver ETFs, and physically settled bullion derivatives.

Addressing Systemic Risks in Bullion Custody

SEBI noted that the market around Indian securities for physically backed precious metal products has expanded significantly, resulting in a substantial increase in the volume of physical bullion held in custody. Currently, the physical assets backing ETFs and derivatives operate outside the vault manager regulations, with mutual funds and clearing corporations managing storage through individual contractual arrangements with specialised commercial vaults.

The regulator stated that these commercial storage facilities have assumed systemic importance given the concentrated volume of investor assets they safeguard. By remaining outside the uniform regulatory framework, large quantities of gold and silver are not currently subject to standard rules on governance, cyber resilience, insurance and business continuity. The proposed expansion aims to eliminate these varying standards for identical underlying assets and reduce operational risks across the custody ecosystem.

Revised Statutory Obligations Proposed

The transition to a broader framework introduces several new definitions and operational updates. The regulations propose replacing product-specific terms like "gold standard" with "bullion delivery standards," defining quality parameters applicable across different financial instruments. The term "vaulting service" will also be amended to shift focus from gold specifically to general bullion storage and safekeeping.

Registered entities will need to implement structural adjustments to maintain compliance under the proposed framework. The amendments require vault managers to appoint a dedicated compliance officer responsible for monitoring statutory adherence and resolving investor grievances, with this officer required to report non-compliance directly to SEBI and submit quarterly compliance reports.

Security policies under the new framework will also be broadened significantly - expanding from basic theft and burglary protections to cover a wider range of risks, including fire, fraud, negligence, terrorism and cyber-attacks. Vault managers will also need to establish clear procedures for tracking data related to physical asset reconciliation, insurance policies, and detailed staff profile logs during the registration process.

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Implementation Timeline

Once approved and notified in the official gazette, the amended regulations will take effect on the 30th day following publication, officially superseding the previous June 2024 master circular governing vault manager operations.