Approved Persons (AP)

Approved Persons (AP) refer to individuals or entities authorised by financial regulators or market institutions to perform specific functions within the banking and financial system. In the Indian context, the term is most commonly associated with the securities and capital markets, where Approved or Authorised Persons operate under the regulatory oversight of the Securities and Exchange Board of India (SEBI) and recognised stock exchanges. The concept of Approved Persons is integral to maintaining market integrity, investor protection and orderly financial intermediation, thereby contributing to the stability and efficiency of the Indian economy.
Approved Persons act as regulated intermediaries or representatives who facilitate transactions, provide market access and ensure compliance with regulatory norms.

Concept and Regulatory Meaning of Approved Persons

In Indian financial regulation, an Approved Person is an individual or entity that has been vetted and authorised to act on behalf of a registered intermediary, such as a stockbroker, trading member or financial institution. Approval is granted only after satisfying prescribed eligibility, qualification and compliance requirements.
The concept ensures that:

• Only fit and proper persons participate in financial intermediation
• Market participants adhere to ethical and professional standards
• Accountability is clearly defined within intermediary structures

Approved Persons thus form a crucial link between institutions and end-users in financial markets.

Approved Persons in the Securities Market

In the securities market, Approved Persons are typically associated with stockbrokers and trading members of recognised stock exchanges. Historically referred to as sub-brokers, they were later reclassified as Authorised or Approved Persons under SEBI and exchange regulations.
Their role includes:

• Facilitating trading on behalf of investors
• Assisting in account opening and documentation
• Providing market-related information and support
• Acting as a point of contact between investors and stockbrokers

They operate under the supervision and responsibility of the principal broker, ensuring regulatory compliance.

Eligibility and Approval Process

The approval of an individual or entity as an Approved Person involves a structured process governed by SEBI and stock exchange by-laws.
Key eligibility requirements include:

• Meeting minimum educational or professional qualifications
• Satisfying financial soundness criteria
• Clearing certification examinations where applicable
• Fulfilling the fit and proper person criteria

Approval is granted only after due diligence, ensuring that Approved Persons possess integrity, competence and financial credibility.

Role in Investor Access and Market Outreach

Approved Persons play a significant role in expanding investor participation, particularly in semi-urban and rural areas where direct access to stock exchanges may be limited.
Their contribution includes:

• Promoting financial inclusion in capital markets
• Educating investors about market products and risks
• Supporting retail participation in equities, derivatives and mutual funds
• Bridging the gap between formal markets and small investors

This outreach strengthens household participation in market-based investments.

Responsibilities and Compliance Obligations

Approved Persons are bound by strict compliance and conduct norms to safeguard investor interests and market integrity.
Their obligations include:

• Adhering to SEBI regulations and exchange rules
• Avoiding misrepresentation and unfair trade practices
• Ensuring proper disclosure of risks to clients
• Maintaining confidentiality of client information

Any violation may result in suspension, cancellation of approval or penal action against both the Approved Person and the principal intermediary.

Approved Persons and Banking Integration

Although primarily associated with securities markets, Approved Persons indirectly interact with the banking system through settlement, fund transfers and account management.
Their activities involve:

• Coordination with banks for client fund settlements
• Integration with demat and payment systems
• Facilitating margin payments and refunds
• Supporting digital and online transaction processes

This integration highlights the interconnected nature of banking and capital markets.

Regulatory Oversight and Investor Protection

SEBI and stock exchanges exercise continuous oversight over Approved Persons through inspections, reporting requirements and disciplinary mechanisms.
Regulatory objectives include:

• Preventing fraud and market manipulation
• Ensuring transparency in intermediary operations
• Protecting retail and small investors
• Maintaining confidence in financial markets

Approved Persons thus operate within a tightly regulated environment that prioritises systemic stability.

Economic Significance for the Indian Economy

Approved Persons contribute to the broader Indian economy by supporting efficient capital mobilisation and financial deepening.
Their economic relevance includes:

• Enhancing participation in capital markets
• Supporting entrepreneurship and capital formation
• Improving distribution of financial products
• Strengthening market-based financing mechanisms

These outcomes reduce excessive reliance on bank credit and support balanced economic growth.

Challenges and Limitations

Despite their importance, the Approved Persons framework faces challenges such as:

• Varying levels of financial literacy among investors
• Risk of mis-selling or inadequate disclosures
• Compliance burden for small intermediaries
• Rapid technological changes in trading systems

Evolving Role in a Digital Financial Environment

With the rise of online trading platforms, fintech applications and direct market access, the role of Approved Persons is evolving. While technology has reduced dependence on physical intermediaries, Approved Persons remain relevant for investor guidance, relationship management and regulatory compliance, especially for first-time and small investors.