NSDL Receives Warning from SEBI, Impacting Market Governance

The Securities and Exchange Board of India (SEBI) has issued a warning and show-cause notice to the National Securities Depository Limited (NSDL), due to serious concerns about compliance failure and cybersecurity weakness. The action follows an inspection by SEBI of NSDL for the financial year 2023–24, during which non-compliance with key regulatory standards was identified.

Emphasizing Compliance and Cybersecurity

This development comes shortly after NSDL settled another compliance case by paying ₹3.12 crore under the Depositories and Participants Regulations, 2018. That case involved a delay in grievance redress and failure to meet the code-of-conduct requirements.

Additionally, SEBI has raised concerns regarding NSDL’s response to a cyberattack that occurred in October 2023. The regulator questioned the timeliness and adequacy of incident reporting and highlighted that the growing expectations are rapidly rising amid growing threats to financial stability. Regulatory technology tools enable market infrastructure institutions to reduce risk, respond swiftly to threats, and adapt to regulatory changes.

 By automating compliance management will change how financial institutions tackle regulatory and cybersecurity challenges.

Understanding Systemic Risk and the Impact of Market Stability

NSDL plays a vital role in India’s capital markets by safeguarding assets and settling millions of trades. Any weaknesses in its compliance or cybersecurity could have significant repercussions throughout the financial ecosystem, threatening both investor confidence and operational continuity.

SEBI’s warnings indicate a broader regulatory shift towards zero tolerance for gaps in governance among market infrastructure institutions (MIIs).

Why Modernization is Important?

The situation highlights the important necessity for institutions like NSDL to modernize:

• Real-time compliance monitoring
  
  

• Advanced cyber threat detection and response
  
  

• Overhauling legacy IT systems
  
  

By utilizing regulatory technology tools, market infrastructure institutions can reduce their risk exposure, ensure faster response to threats, and meet evolving regulatory expectations. Compliance Management automation and AI will redefine how financial institutions tackle regulatory and cybersecurity challenges

Conclusion

SEBI’s action against NSDL highlights the urgent need for robust governance, real-time oversight, and cyber resilience are now essential pillars of market integrity. Institutions that don’t adapt may face penalties, but a loss of trust. As we move further into 2025, Compliance Management automation and AI will redefine how financial institutions tackle regulatory and cybersecurity challenges. 

Automation reduces errors and accelerates reporting, while AI-powered analytics provide predictive insights to identify risks before they escalate. 

Companies like Ricago lead this transformation, providing solutions for real-time compliance monitoring and enhanced cyber resilience. Embracing these technologies is essential for market stability and investor trust.