India’s market watchdog warns PMS firms: unintended slips forgiven, deliberate ones won’t be

India’s Securities and Exchange Board (SEBI) has issued a pointed message to the country’s portfolio management services (PMS) industry: honest mistakes will be met with patience, but deliberate rule-bending will not be. The warning came alongside a disclosure that SEBI’s own AI surveillance tools have started detecting front-running patterns in a segment of the market the regulator had not expected to see them in.

Manoj Kumar, executive director of SEBI, made the remarks at the Association of Portfolio Managers in India’s (APMI) PMS Leadership Conclave 2026 in Chennai. ‘Recently, we have noticed our AI generating enough alerts, and over a period of time, the patterns emerging from those alerts suggest that a certain amount of front-running is also happening in the PMS industry,’ he said, adding that the regulator had long assumed the practice was largely confined to mutual funds. SEBI, he said, is now analysing how the pattern has affected investors.

On enforcement, Kumar struck a measured tone. ‘We always see that when you operate, there can be some unintended violations. As long as these violations remain unintended, we are very, very accommodative. We will listen to your viewpoint,’ he said, describing SEBI’s approach as one of ‘handholding’ rather than immediate punishment. At the same time, he said the goal was to build greater awareness within the industry and discourage conduct that could be perceived as even remotely impermissible, warning that deliberate offenders would eventually face regulatory scrutiny and enforcement.

Kumar also confirmed that SEBI has begun revamping the regulatory framework for PMS providers, with a consultation paper expected soon. The stated aim is to make the rules easier to understand, improve ease of doing business, and let licensed firms participate more actively in the market.

APMI chairman Biharilal Deora, speaking to TOI at the conclave, said the upcoming review would help the industry grow further. The PMS regulatory framework dates back to 1993 and was last comprehensively reviewed in 2020; this next review is arriving within a markedly shorter gap. The PMS industry’s assets under management currently stand at Rs 42.5 lakh crore, a number both SEBI and APMI expect to rise substantially in the years ahead.

Wikimedia Commons/by Rakesh from Bangalore