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NISM Series III A – Introduction to Compliance and Role of the Compliance Officer

12 Apr 2026 • NISM-Series-3A: Securities Intermediaries Compliance (Non-Fund) Mock Tests

 

NISM Series III A – Introduction to Compliance and Role of the Compliance Officer

Welcome to Part 3 of the NISM Series III A Short Notes series on PassNISM.in. This post covers Chapter III: Introduction to Compliance — one of the most important and frequently tested chapters in the NISM Series III A Securities Intermediaries Compliance exam.

This chapter is closely linked to real-world professional practice. If you are a compliance officer or aspiring to be one in any SEBI-registered intermediary, this chapter is directly relevant to your role.

What Is Compliance?

In general terms, compliance means conforming to a rule — such as a specification, policy, standard, or law.

In the context of the securities market, compliance means a set of actions through which registered intermediaries and issuer companies conform to the rules and regulations laid down by SEBI, stock exchanges, and other regulatory authorities.

Compliance is not just a legal obligation — it is a critical function that protects investors, maintains market integrity, and ensures the financial system operates fairly and transparently.

Who Is a Compliance Officer (CO)?

A Compliance Officer (CO) is a person specifically designated by a regulated entity to:

  • Monitor compliance with the provisions of the SEBI Act, 1992, and rules and regulations thereunder
  • Ensure compliance with notifications, guidelines, and instructions issued by SEBI or the Central Government
  • Handle redressal of investors' grievances
  • Monitor compliance with the rules, regulations, and bye-laws of the concerned stock exchanges or the Registrar of Companies (ROC), where applicable

Scope and Role of a Compliance Officer in the Indian Securities Market

The CO's responsibilities extend to monitoring compliance by the intermediary with:

  • The SEBI Act, 1992
  • Rules, regulations, notifications, and guidelines of SEBI or the Central Government
  • Rules and regulations of concerned stock exchanges
  • Regulations of Self-Regulatory Organizations (SROs), where applicable

The CO acts as the primary interface between the intermediary and regulatory authorities, ensuring that the organization operates within the defined legal framework at all times.

Responsibilities of Compliance Officers Towards Stakeholders External Stakeholders

The CO is accountable to the following external stakeholders:

  • Central Government
  • SEBI
  • Stock Exchanges
  • Registrar of Companies (ROC)
  • Reserve Bank of India (RBI)
  • Income Tax Authorities
  • Investors
  • Issuers
  • Other intermediaries

Internal Stakeholders

  • Board of Directors (BoD)
  • Officers of the organization
  • Employees

Why Independence of the Compliance Officer Matters

The gap between regulatory intent and actual compliance is minimized when a professional and independent cadre of compliance officers functions in each intermediary organization.

The CO must operate independently — free from commercial pressures — to ensure that internal policies and procedures align with regulatory objectives rather than mere business convenience. In cases of conflict between business expediency and regulatory requirements, the CO must prioritize regulatory compliance.

This independence is why the CO typically reports directly to the Board of Directors (BoD) of the intermediary.

Reporting Responsibility of the Compliance Officer

It is the duty of the CO to immediately and independently report any non-compliance observed to:

  1. The Board of Directors (BoD) of the intermediary
  2. SEBI

This reporting responsibility is classified into two types:

  • Mandatory Reporting: Regular, scheduled reports as required by regulations
  • Critical Reporting: Immediate reporting of serious breaches, frauds, or significant non-compliance events

Compliance Requirements – SEBI (CAPSM) Regulations, 2007

The SEBI (Certification of Associated Persons in Securities Markets) Regulations, 2007 lay down important compliance rules regarding certifications for persons working with securities market intermediaries.

Obligation to Obtain Certification

Under Regulation 3 of the SEBI (CAPSM) Regulations, 2007, SEBI may notify categories of associated persons who are required to obtain a certificate for working with specific classes of intermediaries.

An associated person who was already employed with an intermediary before the SEBI notification date may continue to work if they obtain the certificate within two years from the specified date.

Validity of the Certificate

  • The NISM certificate is valid for 3 years from the date of grant or last revalidation
  • Upon expiry, the certificate can be revalidated for another 3 years provided the associated person successfully completes a Continuing Professional Education (CPE) program specified by NISM

This means that compliance professionals must stay updated through regular learning and revalidation — a critical aspect of the NISM certification ecosystem.

Key Obligations of Intermediaries Under SEBI (Intermediaries) Regulations, 2008

Under the SEBI (Intermediaries) Regulations, 2008, every intermediary must:

  • Provide SEBI with a certificate of compliance from the Compliance Officer on 1st April every year, certifying continuous compliance with all obligations and eligibility criteria under the relevant regulations
  • Display a copy of this certificate at all offices, including branch offices
  • Appoint a Compliance Officer to monitor adherence to SEBI rules, regulations, notifications, guidelines, circulars, and orders

Inspection and Disciplinary Proceedings

When SEBI undertakes an inspection of an intermediary, every director, partner, officer, employee, and agent of that intermediary is duty-bound to:

  • Produce books, accounts, records (including telephone and electronic records) as required by the inspecting authority
  • Furnish statements and information related to its activities within the specified time
  • Allow reasonable access to the premises of the intermediary

Action in Case of Default – Suspension and Cancellation of Certificate

If a default is found, the following process is followed:

  1. The designated authority submits a report recommending action to the designated member
  2. The designated member issues a show-cause notice to the intermediary
  3. The intermediary is given an opportunity to respond before any action is taken
  4. A common order may be passed for multiple notices where subject matters are substantially similar

Effect of Debarment, Suspension, or Cancellation

Once debarred or suspended, the intermediary must:

  • Not undertake any new assignment, contract, or scheme
  • Allow clients and investors to withdraw or transfer their securities and funds without additional cost
  • Make provisions for liabilities incurred
  • Take action regarding records, documents, securities, and investor funds as directed by SEBI

Code of Conduct for Intermediaries

All SEBI-registered intermediaries are expected to maintain the following standards of conduct:

  • High Standards of Service: Always act in the best interests of clients and the market
  • Conflict of Interest: Identify and disclose conflicts of interest; act in the client's best interest at all times
  • Compliance and Corporate Governance: Adhere strictly to all applicable regulations, maintain ethical standards, and ensure sound corporate governance

Quick Revision – Key Numbers for NISM III A Exam

Fact Detail
NISM Certificate Validity 3 years from date of grant
Certificate Revalidation Period 3 years (after completing CPE)
Existing employee grace period for certification 2 years from SEBI-specified date
Annual Compliance Certificate submission date 1st April every year
CO must report non-compliance to BoD of intermediary and SEBI

Internal Links for Further Reading

Frequently Asked Questions (FAQs) What is the role of a Compliance Officer in a securities intermediary?

A Compliance Officer monitors and ensures adherence to all SEBI regulations, stock exchange bye-laws, and other applicable rules. They also handle investor grievances and independently report non-compliance to the Board and SEBI.

How long is the NISM certificate valid?

The NISM certificate is valid for 3 years. It can be renewed for another 3 years by completing a Continuing Professional Education (CPE) program as specified by NISM.

When must intermediaries submit the annual compliance certificate to SEBI?

Every intermediary must submit a certificate of its Compliance Officer to SEBI on or before 1st April every year.

This is Part 3 of the NISM Series III A Short Notes series on PassNISM.in. Continue to Part 4: SEBI Act, 1992 – Powers, Functions and Penalties.