SEBI Moves to Expand Vault Manager Regulatory Framework: A Comprehensive Analysis of the Proposed Amendments to SEBI (Vault Managers) Regulations, 2021

Background and Context

India's physically backed precious metals investment landscape has undergone remarkable transformation over the past several years. Gold ETFs, Silver ETFs, and physically settled exchange-traded derivatives on bullion have collectively witnessed substantial growth in assets under management, trading volumes, and retail participation. Yet, despite this rapid expansion, the regulatory architecture governing the physical custody and storage of bullion underlying these instruments has remained narrow in its coverage — confined primarily to gold deposited for the issuance of Electronic Gold Receipts (EGRs).

Recognising this regulatory gap, the Securities and Exchange Board of India (SEBI) has placed before its Board a detailed proposal for reviewing and comprehensively expanding the scope of the SEBI (Vault Managers) Regulations, 2021. The proposal envisions transforming the existing EGR-centric framework into a broad, product-neutral regulatory structure that would govern all forms of physical bullion underlying SEBI-specified instruments.

This article provides a structured analysis of the key proposals, their rationale, public consultation outcomes, and the specific regulatory amendments being recommended.

Why the Existing Framework Requires Reform

The Growing Gap Between Market Reality and Regulatory Coverage

Currently, the SEBI (Vault Managers) Regulations, 2021 regulate only those vault managers handling gold deposited in connection with EGRs. However, discussions with Asset Management Companies (AMCs), Custodians, and Clearing Corporations have revealed that a substantial portion of the physical gold and silver underlying Gold ETFs, Silver ETFs, and physically settled bullion derivatives is already being stored in vaults maintained by SEBI-registered Vault Managers — yet this storage activity falls entirely outside the formal regulatory perimeter.

This creates a situation where investor-owned precious metals of considerable systemic value are held under purely contractual arrangements, without being subject to:

  • Uniform governance and operational standards
  • Mandatory risk management requirements
  • SEBI inspection and audit frameworks
  • Prescribed cyber resilience measures
  • Insurance norms and business continuity requirements

Systemic Importance of Vaults

As the concentration of investor-owned bullion in a limited number of storage facilities continues to grow, these vaults have assumed systemic significance in preserving the integrity of settlement and redemption mechanisms. The absence of a harmonised regulatory framework for custody activities that are substantially similar in nature — regardless of whether the underlying instrument is an EGR, an ETF unit, or a derivative contract — represents an inconsistency that the proposed amendments seek to address.

The Existing Regulatory Architecture

SEBI (Vault Managers) Regulations, 2021

The SEBI (Vault Managers) Regulations, 2021 were notified in December 2021, following the Government of India's notification of EGRs as securities under the Securities Contracts (Regulation) Act, 1956. The Board had originally approved the Gold Exchange/EGR segment framework on September 28, 2021. The Regulations provide a comprehensive structure covering:

  • Registration procedures for Vault Managers
  • Net worth and financial eligibility criteria
  • Safekeeping and record maintenance obligations
  • Reconciliation of physical gold holdings
  • Internal controls, audit, and inspection requirements

At present, three Vault Managers are registered with SEBI for providing vaulting services in connection with EGRs.

SEBI Master Circular for Electronic Gold Receipts (June 24, 2024)

This Master Circular consolidates operating guidelines issued under the VM Regulations, including procedures for deposit, storage, transfer, and withdrawal of gold, creation and extinguishment of EGRs, infrastructure standards, and periodic review requirements. Critically, this circular is entirely EGR-specific and does not address vaulting services rendered for bullion underlying other SEBI-specified instruments.

The proposed reforms envisage that the consequential circular to be issued post-amendment will rescind this Master Circular dated June 24, 2024.

CDAC Recommendations and Public Consultation

CDAC's 20th Meeting — August 3, 2026

The proposal to expand the scope of the VM Regulations was placed before SEBI's Commodity Derivatives Advisory Committee (CDAC) at its 20th meeting held on August 3, 2026. After deliberating on the systemic importance of vaults, the need for harmonised standards across EGRs, ETFs, and derivatives, and the operating guidelines necessary for implementation, the CDAC recommended both the regulatory amendments and the issuance of a consequential circular.

Public Consultation — August 11, 2026

Acting on CDAC's recommendations, SEBI published a Consultation Paper on "Review and Expansion of the Scope of SEBI (Vault Managers) Regulations, 2021" on August 11, 2026. The consultation drew 122 public comments in total: